Question 1

One of the primary advantages of options is the leverage they provide.

Accepted Answer

A) True 
 B)False

Question 2

Bob's DJIA Index call option had a strike price of 261. When he exercised the option, the Dow was at 26,350.

Accepted Answer

A)  Bob received $2,500 from the writer of the contract. 
B)  Bob paid $250 to the writer of the contract. 
C)  Bob received $250 from the writer of the contract. 
D)  Bob paid $2,500 to the writer of the contract. 
A)  Bob received $2,500 from the writer of the contract. 
B)  Bob paid $250 to the writer of the contract. 
C)  Bob received $250 from the writer of the contract. 
D)  Bob paid $2,500 to the writer of the contract.

Question 3

Warrants are generally created when

Accepted Answer

A)  a firm decides to execute a stock split. 
B)  the issuing corporation decides to sweeten a bond issue. 
C)  a LEAP expires and automatically converts. 
D)  a financial institution decides to create them based on market conditions. 
A)  a firm decides to execute a stock split. 
B)  the issuing corporation decides to sweeten a bond issue. 
C)  a LEAP expires and automatically converts. 
D)  a financial institution decides to create them based on market conditions.

Question 4

One reason that writing options can be a viable and profitable investment strategy is that

Accepted Answer

A)  the option writer collects the quarterly dividends. 
B)  many options expire unexercised. 
C)  an option writer determines when the option is exercised. 
D)  an option writer can exercise the option to avoid a potential loss. 
A)  the option writer collects the quarterly dividends. 
B)  many options expire unexercised. 
C)  an option writer determines when the option is exercised. 
D)  an option writer can exercise the option to avoid a potential loss.

Question 5

Tiffany would like to own shares of Blackwood, Inc. but only if she can acquire them at a total cost of $30 a share or less. Blackwood is currently trading at $31.76. Cynthia should with a strike price of $30. Ignore transaction costs.

Accepted Answer

A)  buy a call 
B)  buy a put 
C)  write a call 
D)  write a put 
A)  buy a call 
B)  buy a put 
C)  write a call 
D)  write a put

Question 6

Writers of option contracts

Accepted Answer

A)  have a limited liability specified in the contract. 
B)  hope to exercise the option on favorable terms. 
C)  earn a commission no matter what subsequently happens to the contract. 
D)  earn a profit when the option expires without being exercised. 
A)  have a limited liability specified in the contract. 
B)  hope to exercise the option on favorable terms. 
C)  earn a commission no matter what subsequently happens to the contract. 
D)  earn a profit when the option expires without being exercised.

Question 7

The option premium is

Accepted Answer

A)  the market price of the option. 
B)  the amount by which the stock price is expected to move before the option expires. 
C)  the fee charged by the options exchanges for executing transactions. 
D)  the difference between the strike price and the underlying price of the security. 
A)  the market price of the option. 
B)  the amount by which the stock price is expected to move before the option expires. 
C)  the fee charged by the options exchanges for executing transactions. 
D)  the difference between the strike price and the underlying price of the security.

Question 8

Options allow investors to speculate on price movements without a large initial investment.

Accepted Answer

A) True 
 B)False

One of the primary advantages of options is the leverage they provide.

Bob's DJIA Index call option had a strike price of 261. When he exercised the option, the Dow was at 26,350.

Warrants are generally created when

One reason that writing options can be a viable and profitable investment strategy is that

Tiffany would like to own shares of Blackwood, Inc. but only if she can acquire them at a total cost of $30 a share or less. Blackwood is currently trading at $31.76. Cynthia should with a strike price of $30. Ignore transaction costs.

Writers of option contracts

The option premium is

Options allow investors to speculate on price movements without a large initial investment.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Futures Markets and Securities

Filters

Exam 14: Options: Puts and Calls

One of the primary advantages of options is the leverage they provide.

Bob's DJIA Index call option had a strike price of 261. When he exercised the option, the Dow was at 26,350.

Warrants are generally created when

One reason that writing options can be a viable and profitable investment strategy is that

Tiffany would like to own shares of Blackwood, Inc. but only if she can acquire them at a total cost of $30 a share or less. Blackwood is currently trading at $31.76. Cynthia should with a strike price of $30. Ignore transaction costs.

Writers of option contracts

The option premium is

Options allow investors to speculate on price movements without a large initial investment.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Futures Markets and Securities

Filters