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Question 1

If you are long the option, then you can choose whether to exercise or not.

[removed] True

[removed] False

Question 2

Risk-neutral valuation is one way to estimate the value of the option before maturity

[removed] True

[removed] False

Question 3

A call has an exercise price of $18 and 6 months to maturity. The stock price is $19. Find the intrinsic value. If the option price is $1.75, what is the speculative value?

[removed]

A.

Intrinsic = 1; speculative = .75

[removed]

B.

Intrinsic = 0; speculative = .75

[removed]

C.

Intrinsic = 1; speculative = 1.75

[removed]

D.

Intrinsic = 0; speculative = 1.75

Question 4

There are two calls on the same stock. Both expire in 6 months and are identical in every way except the exercise price. If Call A has an exercise price of $40 and Call B has an exercise price of $50, which call will have a higher price?

[removed]

A.

Call A

[removed]

B.

Call B

[removed]

C.

Cannot be determined

Question 5

If the present value of the exercise price is $20, the call option is selling for $5, and the market price of the stock is $22. If the put is selling for $5, should you buy it? Why or why not?

[removed]

A.

Yes, you will make $3

[removed]

B.

No, you will lose $3

[removed]

C.

Yes, you will make $2

[removed]

D.

No, you will lose $2

Question 6

Which of the following is an example of a real option?

[removed]

A.

Foothold in an expanding market

[removed]

B.

End a project early

[removed]

C.

Wait for better market conditions

[removed]

D.

All of these are real options

 

Question 7

A _____ gives the owner the right to buy an asset at a fixed price for a set length of time

[removed]

A.

Treasury bill

[removed]

B.

Put

[removed]

C.

Call

Question 8

If immediate exercise generates value, the option is ___ the money.

[removed]

A.

In

[removed]

B.

At

[removed]

C.

Out of

Question 9

The minimum option value

[removed]

A.

intrinsic value

[removed]

B.

speculative value

[removed]

C.

option price

Question 10

With a (an) ____ option, you can exercise at any time up to the maturity date

[removed]

A.

European

[removed]

B.

American

A decrease in ____ will decrease the price of both a call and a put on the same stock

[removed]

A.

Exercise price

[removed]

B.

Dividends

[removed]

C.

Stock price

[removed]

D.

Volatility

If the stock is worthless, then the call option is worthless.

[removed] True

[removed] False

 

Put-call parity says that the call plus the stock is equal to the put plus the present value of the exercise price

[removed] True

[removed] False

 

 

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