Question 1

Options on futures expire at the same time the futures contract expires.

Accepted Answer

A) True 
 B)False

Question 2

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. A covered call is an appropriate strategy if

Accepted Answer

A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish. 
A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish.

Question 3

The most important input the investor must provide in determining option values is the strike price.

Accepted Answer

A) True 
 B)False

Question 4

Index options can only be settled in cash.

Accepted Answer

A) True 
 B)False

Question 5

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 $70.

Accepted Answer

A) $77.75 
B) $87.25 
C) $82.25 
D) $72.75 
E) None of the above 
A) $77.75 
B) $87.25 
C) $82.25 
D) $72.75 
E) None of the above

Question 6

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 straddle using the options with a 90 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?

Accepted Answer

A) $68.75 loss 
B) $68.75 gain 
C) $37.50 loss 
D) $1,200.00 loss 
E) $1,200.00 gain 
A) $68.75 loss 
B) $68.75 gain 
C) $37.50 loss 
D) $1,200.00 loss 
E) $1,200.00 gain

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 $$\begin{array} { l c c } 
\text { Strike Price } & \text { Put Price } & \text { Call Price } \
\hline \$ 22.50 & \$ 2.65 & \$ 1.85
\end{array}$$
-Refer to Exhibit 22.8. Calculate the payoff of a long straddle at an expiration stock price of $20.

Accepted Answer

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

Question 8

Buying a bear spread is equivalent to

Accepted Answer

A) Selling a bull spread. 
B) Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date. 
C) Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price. 
D) Choices a and b only. 
E) None of the above 
A) Selling a bull spread. 
B) Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date. 
C) Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price. 
D) Choices a and b only. 
E) None of the above

Question 9

The longer the time to expiration, the greater the value of a call option.

Accepted Answer

A) True 
 B)False

Question 10

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 $65.

Accepted Answer

A) $71.75 
B) $76.75 
C) $58.25 
D) $81.75 
E) None of the above 
A) $71.75 
B) $76.75 
C) $58.25 
D) $81.75 
E) None of the above

Question 11

Exhibit 22.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The information provided is relevant in the context of a one period (one year) binomial option pricing model. A stock currently trades at $50 per share, a call option on the stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by 25%. The one-year risk free rate is 2%.
-Refer to Exhibit 22.5. Estimate n, the number of call options that must be written.

Accepted Answer

A) -1.4286 
B) -2.9286 
C) -2.8571 
D) -2.5714 
E) -1.1111 
A) -1.4286 
B) -2.9286 
C) -2.8571 
D) -2.5714 
E) -1.1111

Question 12

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 $0.80 and the call option was purchased, what is the dollar gain or loss?

Accepted Answer

A) $123 gain 
B) $590 loss 
C) $312 gain 
D) $237 gain 
E) $0 
A) $123 gain 
B) $590 loss 
C) $312 gain 
D) $237 gain 
E) $0

Question 13

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. A long straddle is an appropriate strategy if

Accepted Answer

A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish. 
A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish.

Question 14

The owner of a call option on a futures contract has the obligation to buy the futures contract at a predetermined strike price during a specified time period.

Accepted Answer

A) True 
 B)False

Question 15

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. What would the net value of a long strap position be if the stock price at expiration is $35?

Accepted Answer

A) -$1.15 
B) -$2.30 
C) $1.15 
D) $2.30 
E) $5.20 
A) -$1.15 
B) -$2.30 
C) $1.15 
D) $2.30 
E) $5.20

Question 16

A long strip position indicates that an investor is bullish but conservative.

Accepted Answer

A) True 
 B)False

Question 17

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. A protective put is an appropriate strategy if

Accepted Answer

A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish. 
A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish.

Question 18

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. How much must an investor pay for one call option contract?

Accepted Answer

A) $680 
B) $815 
C) $625 
D) $590 
E) $340 
A) $680 
B) $815 
C) $625 
D) $590 
E) $340

Question 19

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. A short straddle is an appropriate strategy if

Accepted Answer

A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish. 
A) An investor wishes to generate additional income. 
B) An investor wished to insure against a decline in share values. 
C) An investor expected share prices to be volatile. 
D) An investor expected share prices to remain in a trading range. 
E) An investor expected share prices to be volatile, but was inclined to be bullish.

Question 20

Stock options expire on the Sunday following the third Saturday of the designated month.

Accepted Answer

A) True 
 B)False

Options on futures expire at the same time the futures contract expires.

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. A covered call is an appropriate strategy if

The most important input the investor must provide in determining option values is the strike price.

Index options can only be settled in cash.

Buying a bear spread is equivalent to

The longer the time to expiration, the greater the value of a call option.

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. A long straddle is an appropriate strategy if

The owner of a call option on a futures contract has the obligation to buy the futures contract at a predetermined strike price during a specified time period.

A long strip position indicates that an investor is bullish but conservative.

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. A protective put is an appropriate strategy if

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. How much must an investor pay for one call option contract?

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. A short straddle is an appropriate strategy if

Stock options expire on the Sunday following the third Saturday of the designated month.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 22: Option Contracts

Options on futures expire at the same time the futures contract expires.

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. A covered call is an appropriate strategy if

The most important input the investor must provide in determining option values is the strike price.

Index options can only be settled in cash.

Buying a bear spread is equivalent to

The longer the time to expiration, the greater the value of a call option.

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. A long straddle is an appropriate strategy if

The owner of a call option on a futures contract has the obligation to buy the futures contract at a predetermined strike price during a specified time period.

A long strip position indicates that an investor is bullish but conservative.

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. A protective put is an appropriate strategy if

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. How much must an investor pay for one call option contract?

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. A short straddle is an appropriate strategy if

Stock options expire on the Sunday following the third Saturday of the designated month.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters