Question 1

If an investor constructs a covered call,

Accepted Answer

A)  there is no limit to the potential profit 
B)  risk is increased 
C)  risk is reduced 
D)  the term of the position is increased 
A)  there is no limit to the potential profit 
B)  risk is increased 
C)  risk is reduced 
D)  the term of the position is increased

Question 2

A call option is similar to a warrant except

Accepted Answer

A)  the strike price is fixed 
B)  it may be issued by individual investors 
C)  it is not marketable (saleable) 
D)  it receives dividend payments 
A)  the strike price is fixed 
B)  it may be issued by individual investors 
C)  it is not marketable (saleable) 
D)  it receives dividend payments

Question 3

What are the intrinsic values and time premiums of the following call options if the price of the underlying stock is $35? What are the profits and losses to the buyers and the writers if the stock sells for $31 at the options' expiration?

Accepted Answer

Intrinsic value of the calls:
Price of t

Question 4

One reason for writing and selling a covered call
Option is

Accepted Answer

A)  potential leverage 
B)  safety of principal 
C)  income received 
D)  liquidity 
A)  potential leverage 
B)  safety of principal 
C)  income received 
D)  liquidity

Question 5

Because of the small cash outlay to buy an option, these securities are considered to be conservative investments.

Accepted Answer

A) True 
 B)False

Question 6

A put and a call have the following terms:
   
The price of the stock is currently $55. The price of the call and put are, respectively, $9 and $1. What will be the profit from buying the call or buying the put if, after six months, the price of the stock is $40, $50, or $60?

Accepted Answer

@#IMG-DLM& Profit on the purchase of the

Question 7

Stock index options permit investors to establish a
position in the market without having to select individual stocks.

Accepted Answer

A) True 
 B)False

Question 8

A call is an option to

Accepted Answer

A)  sell stock at a specified price 
B)  buy stock at a specified price 
C)  deliver stock at a specified price 
D)  deliver bonds at a specified price 
A)  sell stock at a specified price 
B)  buy stock at a specified price 
C)  deliver stock at a specified price 
D)  deliver bonds at a specified price

Question 9

The intrinsic value of an option to buy stock is

Accepted Answer

A)  its price 
B)  its strike price 
C)  the difference between the stock's price and the option's strike price 
D)  the difference between the option's strike price and the option's price 
A)  its price 
B)  its strike price 
C)  the difference between the stock's price and the option's strike price 
D)  the difference between the option's strike price and the option's price

Question 10

There is no limit to the potential loss from buying a call option.

Accepted Answer

A) True 
 B)False

Question 11

Given the following information,
finish the following sentences:
   
a. The intrinsic value of the call is _________.
b. The time premium paid for the call is ________.
c. If an investor established a covered call position, the amount invested is _________.
d. The most the buyer of the call can lose is ________.
e. The maximum amount the seller of the call naked can lose is ________.

Accepted Answer

$50 - $45 = $5 a. The funds required to

Question 12

Stock index options
1) permit the investor to short the market instead
Of individual stocks
2) require delivery of an index of stocks
3) limit the buyer's potential loss to the cost of
The option

Accepted Answer

A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of the above 
A)  1 and 2 
B)  1 and 3 
C)  2 and 3 
D)  all of the above

Question 13

The value of a put is inversely related to the value of
the underlying stock.

Accepted Answer

A) True 
 B)False

Question 14

The time premium paid for an option reduces the option's potential leverage.

Accepted Answer

A) True 
 B)False

Question 15

If the price of a stock rises, the writer of a put
option profits.

Accepted Answer

A) True 
 B)False

Question 16

Warrants are issued by

Accepted Answer

A)  individuals 
B)  firms 
C)  governments 
D)  investor 
A)  individuals 
B)  firms 
C)  governments 
D)  investor

Question 17

Since options offer potential leverage, they tend to
sell for a time premium.

Accepted Answer

A) True 
 B)False

Question 18

The maximum potential profit on a covered call is the time premium paid for the stock.

Accepted Answer

A) True 
 B)False

Question 19

The strike price of an option is fixed when the option is issued.

Accepted Answer

A) True 
 B)False

Question 20

The intrinsic value of a put establishes the put's
maximum price.

Accepted Answer

A) True 
 B)False

If an investor constructs a covered call,

A call option is similar to a warrant except

What are the intrinsic values and time premiums of the following call options if the price of the underlying stock is $35? What are the profits and losses to the buyers and the writers if the stock sells for $31 at the options' expiration?

One reason for writing and selling a covered call Option is

Because of the small cash outlay to buy an option, these securities are considered to be conservative investments.

A put and a call have the following terms: The price of the stock is currently $55. The price of the call and put are, respectively, $9 and $1. What will be the profit from buying the call or buying the put if, after six months, the price of the stock is $40, $50, or $60?

Stock index options permit investors to establish a position in the market without having to select individual stocks.

A call is an option to

The intrinsic value of an option to buy stock is

There is no limit to the potential loss from buying a call option.

Stock index options 1) permit the investor to short the market instead Of individual stocks 2) require delivery of an index of stocks 3) limit the buyer's potential loss to the cost of The option

The value of a put is inversely related to the value of the underlying stock.

The time premium paid for an option reduces the option's potential leverage.

If the price of a stock rises, the writer of a put option profits.

Warrants are issued by

Since options offer potential leverage, they tend to sell for a time premium.

The maximum potential profit on a covered call is the time premium paid for the stock.

The strike price of an option is fixed when the option is issued.

The intrinsic value of a put establishes the put's maximum price.

An Introduction to Investmentsprivate

Securities Markets

The Time Value of Moneyprivate

Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Fundsprivate

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs-private

Stockprivate

The Valuation of Stockprivate

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

The Bond Marketprivate

The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

Option Valuation and Strategiesprivate

Commodity and Financial Futuresprivate

Financial Planning and Investing in an Efficient Market Context

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Exam 17: An Introduction to Options

If an investor constructs a covered call,

A call option is similar to a warrant except

What are the intrinsic values and time premiums of the following call options if the price of the underlying stock is $35? What are the profits and losses to the buyers and the writers if the stock sells for $31 at the options' expiration?

One reason for writing and selling a covered call Option is

Because of the small cash outlay to buy an option, these securities are considered to be conservative investments.

A put and a call have the following terms: The price of the stock is currently $55. The price of the call and put are, respectively, $9 and $1. What will be the profit from buying the call or buying the put if, after six months, the price of the stock is $40, $50, or $60?

Stock index options permit investors to establish a position in the market without having to select individual stocks.

A call is an option to

The intrinsic value of an option to buy stock is

There is no limit to the potential loss from buying a call option.

Stock index options 1) permit the investor to short the market instead Of individual stocks 2) require delivery of an index of stocks 3) limit the buyer's potential loss to the cost of The option

The value of a put is inversely related to the value of the underlying stock.

The time premium paid for an option reduces the option's potential leverage.

If the price of a stock rises, the writer of a put option profits.

Warrants are issued by

Since options offer potential leverage, they tend to sell for a time premium.

The maximum potential profit on a covered call is the time premium paid for the stock.

The strike price of an option is fixed when the option is issued.

The intrinsic value of a put establishes the put's maximum price.

An Introduction to Investmentsprivate

Securities Markets

The Time Value of Moneyprivate

Financial Planning, Taxation, and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Fundsprivate

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs-private

Stockprivate

The Valuation of Stockprivate

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment

Behavioral Finance and Technical Analysis

The Bond Marketprivate

The Valuation of Fixed Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

Option Valuation and Strategiesprivate

Commodity and Financial Futuresprivate

Financial Planning and Investing in an Efficient Market Context

Filters