Question 1

A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free discount bond.

Accepted Answer

A) True 
 B)False

Question 2

The binomial model is a continuous method for valuing options.

Accepted Answer

A) True 
 B)False

Question 3

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. Calculate the possible prices of the stock one year from today.

Accepted Answer

A) $37.50 or $17.50. 
B) $62.50 or $37.50. 
C) $62.50 or $17.50. 
D) $50 or $45. 
E) None of the above. 
A) $37.50 or $17.50. 
B) $62.50 or $37.50. 
C) $62.50 or $17.50. 
D) $50 or $45. 
E) None of the above.

Question 4

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 covered call position be if the stock price at expiration is $35?

Accepted Answer

A) $29.00 
B) $30.65 
C) $33.55 
D) $36.00 
E) $36.65 
A) $29.00 
B) $30.65 
C) $33.55 
D) $36.00 
E) $36.65

Question 5

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 short straddle position be if the stock price at expiration is $35?

Accepted Answer

A) -36.15 
B) -7.15 
C) -$1.15 
D) $1.15 
E) $7.15 
A) -36.15 
B) -7.15 
C) -$1.15 
D) $1.15 
E) $7.15

Question 6

The entity that acts as the guarantor of each CBOE-traded contract is the

Accepted Answer

A) Federal government 
B) Securities and exchange commission 
C) CBOE 
D) Options clearing corporation 
E) Federal reserve bank 
A) Federal government 
B) Securities and exchange commission 
C) CBOE 
D) Options clearing corporation 
E) Federal reserve bank

A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free discount bond.

The binomial model is a continuous method for valuing options.

The entity that acts as the guarantor of each CBOE-traded contract is the

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

A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free discount bond.

The binomial model is a continuous method for valuing options.

The entity that acts as the guarantor of each CBOE-traded contract is the

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