Question 1

-​If the numerical value of the VIX rises,

Accepted Answer

A)  ​
Investor fear has diminished
​
​ 
B)  ​investors are becoming more complacent 
C)  ​securities prices are more volatile 
D)  ​yields on securities have increased 
A)  ​
Investor fear has diminished
​
​ 
B)  ​investors are becoming more complacent 
C)  ​securities prices are more volatile 
D)  ​yields on securities have increased

Question 2

An option's time premium rises as the option approaches expiration.​

Accepted Answer

A) True 
 B)False

Question 3

If an individual owns a portfolio of common stocks and wants to hedge the portfolio, that investor may sell a stock index call option.​

Accepted Answer

A) True 
 B)False

Question 4

The VIX is based on index put and call options instead of individual stocks.​

Accepted Answer

A) True 
 B)False

Question 5

​What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55? $$\begin{array} { r c } 
\text { Option strike price } & \text { Price of the call } \
\text { Call at } \$ 50 & \$ 7.00 \
\text { Call at } \$ 55 & 3.00 \
\text { Call at } \$ 60 & 0.50
\end{array}$$

Accepted Answer

\(\begin{array}{ccc}&\text { Intrinsic V

Question 6

If an option has no intrinsic value, it is "out of the money."​

Accepted Answer

A) True 
 B)False

Question 7

If you expect a stock's price to fall, you may
1) buy a call option
2) write a call option
3) buy a put option
4) write a put option

Accepted Answer

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

Question 8

A naked call option writer​
1) profits if stock prices rise
2) profits if stock prices fall
3) owns the underlying stock
4)does not own the underlying stock

Accepted Answer

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

Question 9

The intrinsic value of the put is the price of the stock minus the option's strike price.​

Accepted Answer

A) True 
 B)False

Question 10

The value of a stock index put option rises as security prices rise.​

Accepted Answer

A) True 
 B)False

Question 11

A put option is the right to sell stock at a specified price within a specified time period.​

Accepted Answer

A) True 
 B)False

Question 12

Purchasing a put is similar to selling a stock short. Both positions anticipate that the price of the stock will fall.​

Accepted Answer

A) True 
 B)False

Question 13

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 14

The value of a stock index put option will rise if the market as a whole declines.​

Accepted Answer

A) True 
 B)False

Question 15

The volatility index (VIX)​

Accepted Answer

A)  ​is derived from stock valuations 
B)  ​combines stocks and call options 
C)  ​combines bonds and put options 
D)  ​is derived from put and call index options 
A)  ​is derived from stock valuations 
B)  ​combines stocks and call options 
C)  ​combines bonds and put options 
D)  ​is derived from put and call index options

Question 16

​Which of the following is similar to a short position in a stock?

Accepted Answer

A)  ​buying a call option 
B)  ​buying a put option 
C)  realizing a short-term capital gain 
D)  ​writing a covered call 
A)  ​buying a call option 
B)  ​buying a put option 
C)  realizing a short-term capital gain 
D)  ​writing a covered call

Question 17

If the price of a stock is less than the strike price, a call has no intrinsic value (that is, out of the money).​

Accepted Answer

A) True 
 B)False

Question 18

The intrinsic value of a call option rises as the price of the underlying stock falls.​

Accepted Answer

A) True 
 B)False

Question 19

If the stock market declines,​
1) the owner of a stock index call option profits
2) the owner of a stock index call option loses
3) the writer of a stock index call option profits
4) the writer of a stock index call option loses

Accepted Answer

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

Question 20

​At expiration, an option
1) is worth its intrinsic value
2) has no time premium
3) may be exercised by the buyer but not by the writer

Accepted Answer

A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​all three 
A) ​1 and 2 
B) ​1 and 3 
C) ​2 and 3 
D) ​all three

Exam 28: Options: Puts and Calls

-​If the numerical value of the VIX rises,

An option's time premium rises as the option approaches expiration.​

If an individual owns a portfolio of common stocks and wants to hedge the portfolio, that investor may sell a stock index call option.​

The VIX is based on index put and call options instead of individual stocks.​

​What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55? Option strike price Price of the call Call at \ 50 \ 7.00 Call at \ 55 3.00 Call at \ 60 0.50

If an option has no intrinsic value, it is "out of the money."​

If you expect a stock's price to fall, you may 1) buy a call option 2) write a call option 3) buy a put option 4) write a put option

A naked call option writer​ 1) profits if stock prices rise 2) profits if stock prices fall 3) owns the underlying stock 4)does not own the underlying stock

The intrinsic value of the put is the price of the stock minus the option's strike price.​

The value of a stock index put option rises as security prices rise.​

A put option is the right to sell stock at a specified price within a specified time period.​

Purchasing a put is similar to selling a stock short. Both positions anticipate that the price of the stock will fall.​

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?

The value of a stock index put option will rise if the market as a whole declines.​

The volatility index (VIX)​

​Which of the following is similar to a short position in a stock?

If the price of a stock is less than the strike price, a call has no intrinsic value (that is, out of the money).​

The intrinsic value of a call option rises as the price of the underlying stock falls.​

If the stock market declines,​ 1) the owner of a stock index call option profits 2) the owner of a stock index call option loses 3) the writer of a stock index call option profits 4) the writer of a stock index call option loses

​At expiration, an option 1) is worth its intrinsic value 2) has no time premium 3) may be exercised by the buyer but not by the writer

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

The Time Value of Money

Risk and Its Measurement

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Break-Even Analysis and the Payback Period

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Intermediate-Term Debt and Leasing

Futures and Swaps

Filters

-If the numerical value of the VIX rises,

An option's time premium rises as the option approaches expiration.

If an individual owns a portfolio of common stocks and wants to hedge the portfolio, that investor may sell a stock index call option.

The VIX is based on index put and call options instead of individual stocks.

What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55? Option strike price Price of the call Call at \ 50 \ 7.00 Call at \ 55 3.00 Call at \ 60 0.50

If an option has no intrinsic value, it is "out of the money."

A naked call option writer 1) profits if stock prices rise 2) profits if stock prices fall 3) owns the underlying stock 4)does not own the underlying stock

The intrinsic value of the put is the price of the stock minus the option's strike price.

The value of a stock index put option rises as security prices rise.

A put option is the right to sell stock at a specified price within a specified time period.

Purchasing a put is similar to selling a stock short. Both positions anticipate that the price of the stock will fall.

The value of a stock index put option will rise if the market as a whole declines.

The volatility index (VIX)

Which of the following is similar to a short position in a stock?

If the price of a stock is less than the strike price, a call has no intrinsic value (that is, out of the money).

The intrinsic value of a call option rises as the price of the underlying stock falls.

If the stock market declines, 1) the owner of a stock index call option profits 2) the owner of a stock index call option loses 3) the writer of a stock index call option profits 4) the writer of a stock index call option loses

At expiration, an option 1) is worth its intrinsic value 2) has no time premium 3) may be exercised by the buyer but not by the writer