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1 | |
Which of the following is/are call options? |
| | A) | The abandonment option on an investment project |
| | B) | Stand-by underwriting |
| | C) | A and B |
| | D) | The company's option to redeem its bonds at a premium before maturity |
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2 | |
Which of the following investors would be happy to see the stock price rise sharply? |
| | A) | An investor who owns a call option |
| | B) | An investor who owns a put option |
| | C) | An investor who owns the stock and has sold a call option |
| | D) | An investor who has sold a call option |
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3 | |
Suppose an investor sells a put option. What will happen if the stock price on the exercise date exceeds the exercise price? |
| | A) | The seller will need to deliver stock to the owner of the option |
| | B) | The seller will be obliged to buy stock from the owner of the option |
| | C) | The owner will not exercise his option |
| | D) | None of the above |
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4 | |
Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price? |
| | A) | The value of two shares of stock |
| | B) | The value of one share of stock plus the exercise price |
| | C) | The exercise price |
| | D) | The value of one share of stock minus the exercise price |
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5 | |
A put gives the owner the right |
| | A) | And the obligation to buy an asset at a given price |
| | B) | And the obligation to sell an asset at a given price |
| | C) | But not the obligation to buy an asset at a given price |
| | D) | But not the obligation to sell an asset at a given price |
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6 | |
The buyer of a call option has the choice to exercise, but the writer of the call option has: |
| | A) | The choice to offset with a put option |
| | B) | The obligation to deliver the shares at exercise |
| | C) | The choice to deliver shares or take a cash payoff |
| | D) | The choice of exercising the call or not |
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7 | |
Suppose an investor buys one share of stock and a put option on the stock and simultaneously sells a call option on the stock with the same exercise price. What will be the value of his investment on the final exercise date? |
| | A) | Above the exercise price if the stock price rises and below the exercise price if it falls |
| | B) | Equal to the exercise price regardless of the stock price |
| | C) | Equal to zero regardless of the stock price |
| | D) | Below the exercise price if the stock price rises and above if it falls |
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8 | |
The maximum value of a call is equal to: |
| | A) | The price of the stock minus the exercise price |
| | B) | The exercise price times one plus the risk free return |
| | C) | The price of the stock |
| | D) | All of the above |
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9 | |
The higher the exercise price: |
| | A) | The higher the call price |
| | B) | The lower the call price |
| | C) | Has no effect on call price |
| | D) | The higher the stock price |
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10 | |
Which of the following features increase(s) the value of a call option? |
| | A) | A high interest rate |
| | B) | A long time to maturity |
| | C) | A highly variable stock price |
| | D) | All of the above |
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11 | |
If the volatility of the underlying asset decreases, then the: |
| | A) | Value of the put option will increase, but the value of the call option will decrease |
| | B) | Value of the put option will decrease, but the value of the call option will increase |
| | C) | Value of both the put and call option will increase |
| | D) | Value of both the put and call option will decrease |
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12 | |
Which of the following statements is true? |
| | A) | For both calls and puts an increase in the exercise price will cause an increase in the option price |
| | B) | For both calls and puts an increase in the time to maturity will cause an increase in the option price |
| | C) | For calls, but not for puts, an increase in the time to maturity will cause an increase in the option price |
| | D) | For puts, but not for calls, an increase in the time to maturity will cause an increase in the option price |
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13 | |
Suppose Sarah's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50? |
| | A) | 0.375 |
| | B) | 0.500 |
| | C) | 0.600 |
| | D) | 0.75 |
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14 | |
Suppose David's stock price is currently$20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $12? The six-month risk-free interest rate is 5% (periodic rate). |
| | A) | $9.78 |
| | B) | $2.00 |
| | C) | $0.86 |
| | D) | $9.43 |
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15 | |
The Black-Scholes OPM is dependent on which five parameters? |
| | A) | Stock price, exercise price, risk free rate, beta, and time to maturity |
| | B) | Stock price, risk free rate, beta, time to maturity, and variance |
| | C) | Stock price, risk free rate, probability, variance and exercise price |
| | D) | Stock price, exercise price, risk free rate, variance and time to maturity |
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