Question 1

The value of a put rises as the price of

Accepted Answer

A)  stock rises 
B)  a call falls 
C)  stock falls 
D)  a call rises 
A)  stock rises 
B)  a call falls 
C)  stock falls 
D)  a call rises

Question 2

Writing covered call options is more risky than writing naked call options

Accepted Answer

A) True 
 B)False

Question 3

Calls are options to sell stock at a specified price
within a specified time period.

Accepted Answer

A) True 
 B)False

Question 4

In addition to put and call options on individual stocks, there are also options on the market as a whole (i.e., an index).

Accepted Answer

A) True 
 B)False

Question 5

Which of the following assumes higher stock prices?
1) buying a stock index call
2) buying a stock index put
3) selling a stock index call
4) selling a stock index put

Accepted Answer

A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4
PROBLEMS 
A)  1 and 3 
B)  1 and 4 
C)  2 and 3 
D)  2 and 4
PROBLEMS

Question 6

The writer of a covered call cannot lose money if the price of the stock rises.

Accepted Answer

A) True 
 B)False

Question 7

The time premium paid for an option to buy stock
Is affected by

Accepted Answer

A)  the length of time to expiration 
B)  the firm's credit rating 
C)  the existence of a rights offering 
D)  the firm's financial statements 
A)  the length of time to expiration 
B)  the firm's credit rating 
C)  the existence of a rights offering 
D)  the firm's financial statements

Question 8

The writer of a naked call option wants

Accepted Answer

A)  the prices of the stock and the call to rise 
B)  the prices of the stock and the call to fall 
C)  the prices of the stock to fall and the call to rise 
D)  the prices of the stock to rise and the call to remain stable 
A)  the prices of the stock and the call to rise 
B)  the prices of the stock and the call to fall 
C)  the prices of the stock to fall and the call to rise 
D)  the prices of the stock to rise and the call to remain stable

Question 9

A warrant is an option issued by a corporation to buy
its stock at a specified price within a specified time period.

Accepted Answer

A) True 
 B)False

Question 10

A portfolio manager with a position in many stocks may hedge the portfolio by purchasing a stock index call option.

Accepted Answer

A) True 
 B)False

Question 11

An investor may reduce risk by simultaneously purchasing a stock and a put option.

Accepted Answer

A) True 
 B)False

Question 12

Buying a stock index option reduces systematic risk.

Accepted Answer

A) True 
 B)False

Question 13

A warrant is the option to buy one share of stock at $40. It expires after one year and currently sells for $10. The price of the stock is $32. What is the maximum possible profit if an investor buys one share of stock and shorts one warrant? What is the range of stock prices that yields a profit on this position?

Accepted Answer

and "b. (This problem replicates the sam

Question 14

Calls tend to sell for a time premium that exceeds the stock's price.

Accepted Answer

A) True 
 B)False

Question 15

The intrinsic value of an option sets

Accepted Answer

A)  the minimum price of an option 
B)  the maximum price of an option 
C)  neither an option's minimum nor its maximum price 
D)  both the maximum and the minimum price of an option 
A)  the minimum price of an option 
B)  the maximum price of an option 
C)  neither an option's minimum nor its maximum price 
D)  both the maximum and the minimum price of an option

Question 16

Selling a covered call option is comparable to selling a stock short.

Accepted Answer

A) True 
 B)False

Question 17

The price of a call option is often more volatile than the price of the underlying stock.

Accepted Answer

A) True 
 B)False

Question 18

Answer the questions given the following information:
   
a. Is the call "out" of the money?
b. What is the time premium paid for the call?
c. What is the maximum possible loss from buying the call?
d. What is the maximum profit the buyer of the call can earn?
e. What is the maximum profit the seller of the call can earn?

Accepted Answer

The call is in the money: $52

Question 19

The intrinsic value of an option to buy stock rises as

Accepted Answer

A)  the strike price increases and the price of the stock declines 
B)  the strike price increases and the price of the stock rises 
C)  the strike price decreases and the price of the stock declines 
D)  the strike price decreases and the price of the stock rises 
A)  the strike price increases and the price of the stock declines 
B)  the strike price increases and the price of the stock rises 
C)  the strike price decreases and the price of the stock declines 
D)  the strike price decreases and the price of the stock rises

Question 20

The price of an option is generally less than the option's intrinsic value.

Accepted Answer

A) True 
 B)False

The value of a put rises as the price of

Writing covered call options is more risky than writing naked call options

Calls are options to sell stock at a specified price within a specified time period.

In addition to put and call options on individual stocks, there are also options on the market as a whole (i.e., an index).

Which of the following assumes higher stock prices? 1) buying a stock index call 2) buying a stock index put 3) selling a stock index call 4) selling a stock index put

The writer of a covered call cannot lose money if the price of the stock rises.

The time premium paid for an option to buy stock Is affected by

The writer of a naked call option wants

A warrant is an option issued by a corporation to buy its stock at a specified price within a specified time period.

A portfolio manager with a position in many stocks may hedge the portfolio by purchasing a stock index call option.

An investor may reduce risk by simultaneously purchasing a stock and a put option.

Buying a stock index option reduces systematic risk.

Calls tend to sell for a time premium that exceeds the stock's price.

The intrinsic value of an option sets

Selling a covered call option is comparable to selling a stock short.

The price of a call option is often more volatile than the price of the underlying stock.

The intrinsic value of an option to buy stock rises as

The price of an option is generally less than the option's intrinsic value.

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

The value of a put rises as the price of

Writing covered call options is more risky than writing naked call options

Calls are options to sell stock at a specified price within a specified time period.

In addition to put and call options on individual stocks, there are also options on the market as a whole (i.e., an index).

Which of the following assumes higher stock prices? 1) buying a stock index call 2) buying a stock index put 3) selling a stock index call 4) selling a stock index put

The writer of a covered call cannot lose money if the price of the stock rises.

The time premium paid for an option to buy stock Is affected by

The writer of a naked call option wants

A warrant is an option issued by a corporation to buy its stock at a specified price within a specified time period.

A portfolio manager with a position in many stocks may hedge the portfolio by purchasing a stock index call option.

An investor may reduce risk by simultaneously purchasing a stock and a put option.

Buying a stock index option reduces systematic risk.

Calls tend to sell for a time premium that exceeds the stock's price.

The intrinsic value of an option sets

Selling a covered call option is comparable to selling a stock short.

The price of a call option is often more volatile than the price of the underlying stock.

The intrinsic value of an option to buy stock rises as

The price of an option is generally less than the option's intrinsic value.

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