Question 1

Given a set of variables,the Black-Scholes option pricing formula has a call option delta of .496.What is the put delta given these same variables?

Accepted Answer

A)  -1.496
B)  -.504
C)  .504
D)  1.496
E)  The answer cannot be determined based on the information provided. B

Question 2

What is the call option premium given the following information?

Accepted Answer

A)  $7.16
B)  $7.78
C)  $8.58
D)  $9.03
E)  $9.49 C

Question 3

You own 1,500 shares of ABC stock that is currently priced at $27 a share.Given this price,the option delta for a $25 call option on this stock is .724.How many $25 call options do you need to hedge against a -$1 change in the price of the stock?

Accepted Answer

A)  buy 1,500 options
B)  buy 2,482 options
C)  write 1,500 options
D)  write 2,072 options
E)  write 3,295 options D

Question 4

You own 7,500 shares of GO stock which is currently valued at $47 a share.The $50 put has a premium of $2.50 and a put delta of -.60.What position should you take in $50 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A)  buy 125 contracts
B)  buy 1,250 contracts
C)  buy 12,500 contracts
D)  write 125 contracts
E)  write 1,250 contracts

Question 5

A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is .86.What is the approximate call price if the stock increases in value to $45?

Accepted Answer

A)  $0.12
B)  $0.26
C)  $0.96
D)  $1.98
E)  $2.08

Question 6

The VIX is a measure of which one of the following?

Accepted Answer

A)  changes in the daily trading volume of the NASDAQ 100
B)  investor expectations of future market volatility of the S&P 500
C)  minute-by-minute changes in the value of the NASDAQ 100
D)  number of option contracts outstanding on the S&P 500
E)  the opening and closing historical values of the S&P 500

Question 7

Which one of the following statements concerning the relationship between the volatility of the underlying stock price,as measured by sigma,and call and put prices is correct?

Accepted Answer

A)  Call and put prices react fairly similarly in response to changes in sigma.
B)  Call prices increase and put prices decrease as sigma increases.
C)  Put price increase and call prices decrease as sigma increases.
D)  Call prices increase and put prices remain relatively constant and sigma increases.
E)  Neither put nor call prices are affected by changes in sigma.

Question 8

Which one of the following statements concerning option prices is correct?

Accepted Answer

A)  There is a relatively linear direct relationship between the volatility of the underlying stock price and option prices.
B)  Call option prices decrease and put option prices increase as the time to expiration increases.
C)  Put option prices are directly related to the price of the underlying stock.
D)  The relationship between option prices and stock prices is a linear relationship.
E)  Delta measures the effect that the underlying stock's dividend yield has on option prices.

Question 9

Which of the following statements related to employee stock options (ESO)are generally correct?
I.ESO vesting encourages long-term employment.
II.Most ESOs are issued at-the-money.
III.ESOs cannot be resold.
IV.ESOs that are in-the-money are frequently repriced.

Accepted Answer

A)  I and II only
B)  I and IV only
C)  II and III only
D)  I, II, and III only
E)  I, II, III, and IV

Question 10

Which option price(s)will increase when the dividend yield increases?

Accepted Answer

A)  both the call and put
B)  call only
C)  put only
D)  neither the call nor the put
E)  Answer cannot be determined from the information provided.

Question 11

What is the put option premium given the following information?

Accepted Answer

A)  $7.49
B)  $7.98
C)  $8.28
D)  $8.76
E)  $9.64

Question 12

Which one of the following statements is correct?

Accepted Answer

A)  Both call and put option deltas are always positive.
B)  Put option deltas are always positive.
C)  Call option deltas are always positive.
D)  Both call and put option deltas are always negative.
E)  All deltas can be positive, negative, or equal to zero.

Question 13

All else constant,which one of the following situations will produce the highest call price given a strike price of $27.50?

Accepted Answer

A)  $25 stock price; 15 percent standard deviation
B)  $25 stock price; 30 percent standard deviation
C)  $30 stock price; 15 percent standard deviation
D)  $30 stock price; 30 percent standard deviation
E)  Insufficient information is provided to answer this question.

Question 14

Repricing an employee stock option involves which one of the following?

Accepted Answer

A)  stock-split
B)  stock dividend
C)  change in option strike price
D)  change in option expiration date
E)  change in option premium

Question 15

What is the call option premium given the following information?

Accepted Answer

A)  $5.91
B)  $6.28
C)  $6.75
D)  $6.90
E)  $7.13

Question 16

An employee stock option is which one of the following?

Accepted Answer

A)  call option
B)  covered call
C)  put option
D)  protective put
E)  index option

Question 17

Draw a graph with the option price on the vertical axis and the time to expiration on the horizontal axis.Illustrate how put and call option prices vary as the time to expiration increases.

Accepted Answer

The answer of Draw a graph with the option price...

Question 18

Which one of the following situations will produce the highest call price,all else constant?

Accepted Answer

A)  $29 stock price; $30 strike price
B)  $41 stock price; $40 strike price
C)  $20 stock price; $20 strike price
D)  $34 stock price; $35 strike price
E)  $24 stock price; $25 strike price

Question 19

Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

Accepted Answer

A)  stock price volatility
B)  time to option maturity
C)  risk-free interest rate
D)  underlying stock price
E)  dividend yield

Question 20

Which one of the following terms is used as a shortcut means of saying "time to maturity"?

Accepted Answer

A)  holder
B)  expiry
C)  timing
D)  elapsing
E)  dating

Exam 16: Option Valuation

Given a set of variables,the Black-Scholes option pricing formula has a call option delta of .496.What is the put delta given these same variables?

What is the call option premium given the following information?

You own 1,500 shares of ABC stock that is currently priced at $27 a share.Given this price,the option delta for a $25 call option on this stock is .724.How many $25 call options do you need to hedge against a -$1 change in the price of the stock?

You own 7,500 shares of GO stock which is currently valued at $47 a share.The $50 put has a premium of $2.50 and a put delta of -.60.What position should you take in $50 put contracts to hedge your stock against a $1 decrease in price?

A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is .86.What is the approximate call price if the stock increases in value to $45?

The VIX is a measure of which one of the following?

Which one of the following statements concerning the relationship between the volatility of the underlying stock price,as measured by sigma,and call and put prices is correct?

Which one of the following statements concerning option prices is correct?

Which of the following statements related to employee stock options (ESO) are generally correct? I.ESO vesting encourages long-term employment. II.Most ESOs are issued at-the-money. III.ESOs cannot be resold. IV.ESOs that are in-the-money are frequently repriced.

Which option price(s) will increase when the dividend yield increases?

What is the put option premium given the following information?

Which one of the following statements is correct?

All else constant,which one of the following situations will produce the highest call price given a strike price of $27.50?

Repricing an employee stock option involves which one of the following?

What is the call option premium given the following information?

An employee stock option is which one of the following?

Draw a graph with the option price on the vertical axis and the time to expiration on the horizontal axis.Illustrate how put and call option prices vary as the time to expiration increases.

Which one of the following situations will produce the highest call price,all else constant?

Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

Which one of the following terms is used as a shortcut means of saying "time to maturity"?