Exhibit 22.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { l c c c c } && { \text { XYZ CORP } } \\ & { \text { Exercise } } &&{ \text { NYSE } } \\ & \text { Date } & \text { Price } & \text { Price } & \text { Close } \\ \hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 10111 / 16 \\ & \text { OCT } & 90 & 12 & 10111 / 16 \\ & \text { OCT } & 95 & 75 / 8 & 10111 / 16 \\ \text { Puts } & \text { OCT } & 85 & 1 / 8 & 10111 / 16 \\ & \text { OCT } & 90 & 3 / 8 & 10111 / 16 \\ & \text { OCT } & 95 & 13 / 16 & 10111 / 16 \end{array}\] -Refer to Exhibit 22.2. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $1,668.75 gain B) $1,700.00 gain C) $1,700.00 loss D) $31.25 gain E) $31.25 loss A) $1,668.75 gain B) $1,700.00 gain C) $1,700.00 loss D) $31.25 gain E) $31.25 loss E

Exhibit 22.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { | c | c | c | c | c | } \hline \text { Option Type } & & \text { Currency } & { \text { Canadian dollar } } \\ \hline \text { Contract Size } & & 50000 & { \text { Canadian dollars } } \\ \hline \text { Expiry } & & \text { April } & \\ \hline & & & & \\ \hline \text { Strike } & \text { Call } & \text { Put } & & \\ \hline \$ 0.815 & \$ 0.0118 & & & \\ \hline \$ 0.820 & & \$ 0.0068 & & \\ \hline \end{array}\] -Refer to Exhibit 22.1. If the spot rate at expiration is $0.75 and the put option was purchased, what is the dollar gain or loss?

A) $0 B) $200 loss C) $200 gain D) $3160 gain E) $1187 loss A) $0 B) $200 loss C) $200 gain D) $3160 gain E) $1187 loss D

Exhibit 22.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { l c c c c } && { \text { XYZ CORP } } \\ & { \text { Exercise } } &&{ \text { NYSE } } \\ & \text { Date } & \text { Price } & \text { Price } & \text { Close } \\ \hline \text { Calls } & \text { OCT } & 85 & 163 / 4 & 10111 / 16 \\ & \text { OCT } & 90 & 12 & 10111 / 16 \\ & \text { OCT } & 95 & 75 / 8 & 10111 / 16 \\ \text { Puts } & \text { OCT } & 85 & 1 / 8 & 10111 / 16 \\ & \text { OCT } & 90 & 3 / 8 & 10111 / 16 \\ & \text { OCT } & 95 & 13 / 16 & 10111 / 16 \end{array}\] -Refer to Exhibit 22.2. If you establish a long strip using the options with a 95 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

A) $256.25 loss B) $256.25 gain C) $925.00 loss D) $668.75 gain E) $668.75 loss A) $256.25 loss B) $256.25 gain C) $925.00 loss D) $668.75 gain E) $668.75 loss

Exhibit 22.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock \[\begin{array} { l c c } \text { Strike Price } & \text { Put Price } & \text { Call Price } \\ \hline \$ 22.50 & \$ 2.65 & \$ 1.85 \end{array}\] -Refer to Exhibit 22.8. Calculate the net value of a covered call position at an expiration stock price of $20.

A) $1.85 B) $4.45 C) $18.15 D) $21.85 E) $24.35 A) $1.85 B) $4.45 C) $18.15 D) $21.85 E) $24.35

Exhibit 22.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup \[\begin{array} { l c c } \text { Strike Price } & \text { Put Price } & \text { Call Price } \\ \hline \$ 32.50 & \$ 2.85 & \$ 1.65 \end{array}\] -Refer to Exhibit 22.4. Calculate the net value of a covered call position at a stock price at expiration of $20, and a stock price at expiration of $45.

A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8 A) $6.35, $18.85 B) $29.65, $42.15 C) $21.65, $34.15 D) $8, $8 E) -$8, -$8

Exhibit 22.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock \[\begin{array} { l c c } \text { Strike Price } & \text { Put Price } & \text { Call Price } \\ \hline \$ 22.50 & \$ 2.65 & \$ 1.85 \end{array}\] -Refer to Exhibit 22.8. Calculate the payoff of a short straddle at an expiration stock price of $20.

A) -$4.50 B) -$2.00 C) $2.00 D) $4.50 E) $20.50 A) -$4.50 B) -$2.00 C) $2.00 D) $4.50 E) $20.50

Exam 22: Option Contracts

Exhibit 22.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) XYZ CORP Exercise NYSE Date Price Price Close Calls OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 Puts OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 22.2. If you establish a long strip using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

E

Exhibit 22.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Option Type Currency Canadian dollar Contract Size 50000 Canadian dollars Expiry April Strike Call Put \ 0.815 \ 0.0118 \ 0.820 \ 0.0068 -Refer to Exhibit 22.1. If the spot rate at expiration is $0.75 and the put option was purchased, what is the dollar gain or loss?

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

D

The delta in the Black-Scholes model is simply the slope of a line tangent to the call option price curve.

Free

(True/False)

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Question 3

Correct Answer:

Verified

True

In a binomial option pricing model the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

(True/False)

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Question 4

Options can be used to

(Multiple Choice)

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Question 5

Exhibit 22.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) XYZ CORP Exercise NYSE Date Price Price Close Calls OCT 85 163/4 10111/16 OCT 90 12 10111/16 OCT 95 75/8 10111/16 Puts OCT 85 1/8 10111/16 OCT 90 3/8 10111/16 OCT 95 13/16 10111/16 -Refer to Exhibit 22.2. If you establish a long strip using the options with a 95 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

(Multiple Choice)

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Question 6

Exhibit 22.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) GE Corporation has a put option selling for $2.90 and a call option selling for $1.95, both with a strike price of $29.00. -Refer to Exhibit 22.7. Which strategy is most appropriate for an investor who expects share prices to be volatile, but was inclined to be bullish?

(Multiple Choice)

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Question 7

Exhibit 22.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock Strike Price Put Price Call Price \ 22.50 \ 2.65 \ 1.85 -Refer to Exhibit 22.8. Calculate the net value of a covered call position at an expiration stock price of $20.

(Multiple Choice)

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Question 8

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2, you would be

(Multiple Choice)

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Question 9

The calculation of a weighted average of the implied volatility estimates from options on the Standard & Poor's 500 index using a wide range of exercise prices is known as

(Multiple Choice)

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Question 10

In the Black-Scholes option pricing model, an increase in security price (S) will cause

(Multiple Choice)

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Question 11

Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $85.

(Multiple Choice)

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Question 12

The Black-Scholes model assumes that stock price movements can be described by

(Multiple Choice)

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Question 13

Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you buy a call with a strike price of $70 and a price of $6.75. Calculate the effective price paid to repurchase the stock if the price after 35 days is $80.

(Multiple Choice)

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Question 14

A vertical spread involves buying and selling call options in the same stock with

(Multiple Choice)

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Question 15

Exhibit 22.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup Strike Price Put Price Call Price \ 32.50 \ 2.85 \ 1.65 -Refer to Exhibit 22.4. Calculate the net value of a covered call position at a stock price at expiration of $20, and a stock price at expiration of $45.

(Multiple Choice)

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Question 16

The binomial option pricing model approximates the price of an option obtained using the Black-Scholes option pricing model as the number of subintervals increases.

(True/False)

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Question 17

Index options are settled by delivery of the stocks that make up the index.

(True/False)

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Question 18

Exhibit 22.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for a common stock Strike Price Put Price Call Price \ 22.50 \ 2.65 \ 1.85 -Refer to Exhibit 22.8. Calculate the payoff of a short straddle at an expiration stock price of $20.

(Multiple Choice)

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Question 19

A money spread involves buying and selling call options in the same stock with

(Multiple Choice)

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Question 20

The delta in the Black-Scholes model is simply the slope of a line tangent to the call option price curve.

In a binomial option pricing model the initial value of the call can be determined by working backward through the tree and solving for each of the remaining intermediate option values.

Options can be used to

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2, you would be

The calculation of a weighted average of the implied volatility estimates from options on the Standard & Poor's 500 index using a wide range of exercise prices is known as

In the Black-Scholes option pricing model, an increase in security price (S) will cause

The Black-Scholes model assumes that stock price movements can be described by

A vertical spread involves buying and selling call options in the same stock with

The binomial option pricing model approximates the price of an option obtained using the Black-Scholes option pricing model as the number of subintervals increases.

Index options are settled by delivery of the stocks that make up the index.

A money spread involves buying and selling call options in the same stock with

The Investment Setting

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Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

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An Introduction to Portfolio Management

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