Question 1

The delta for a call option will always satisfy which of the following conditions?

Accepted Answer

A)  -1 c c c c > 0 
A)  -1 c c c c > 0

Question 2

A famous option-pricing model was developed by

Accepted Answer

A)  Fisher and Lorie 
B)  Black and Scholes 
C)  Ingersoll and Rand 
D)  Sharpe and Lintner 
A)  Fisher and Lorie 
B)  Black and Scholes 
C)  Ingersoll and Rand 
D)  Sharpe and Lintner

Question 3

On which of the following exchanges are the fewest options traded?

Accepted Answer

A)  New York Stock Exchange 
B)  Philadelphia Stock Exchange 
C)  Chicago Board Options Exchange 
D)  American Stock Exchange 
A)  New York Stock Exchange 
B)  Philadelphia Stock Exchange 
C)  Chicago Board Options Exchange 
D)  American Stock Exchange

Question 4

An option contract usually covers ____ shares.

Accepted Answer

A)  10 
B)  50 
C)  100 
D)  1000 
A)  10 
B)  50 
C)  100 
D)  1000

Question 5

An option which can be exercised anytime is a(n)

Accepted Answer

A)  European option 
B)  wildcard option 
C)  Asian option 
D)  American option 
A)  European option 
B)  wildcard option 
C)  Asian option 
D)  American option

Question 6

An increase in which of the following will cause a call option to decline in value?

Accepted Answer

A)  Volatility 
B)  Underlying asset price 
C)  Striking price 
D)  Interest rates 
A)  Volatility 
B)  Underlying asset price 
C)  Striking price 
D)  Interest rates

Question 7

Delta is the

Accepted Answer

A)  theoretical value of an option 
B)  expected change in the option value as the underlying asset price changes 
C)  intrinsic value of the option 
D)  influence of dividends on the option value 
A)  theoretical value of an option 
B)  expected change in the option value as the underlying asset price changes 
C)  intrinsic value of the option 
D)  influence of dividends on the option value

Question 8

If the stock price is 54, the exercise price is 50, and the put premium is 1, what is the time value?

Accepted Answer

A)  0 
B)  1 
C)  3 
D)  4 
A)  0 
B)  1 
C)  3 
D)  4

Question 9

If the stock price is 27, the strike price is 30, and the put premium is 5, the intrinsic value is

Accepted Answer

A)  -3 
B)  0 
C)  3 
D)  4 
A)  -3 
B)  0 
C)  3 
D)  4

Question 10

The book used an example of call options and

Accepted Answer

A)  libraries 
B)  hockey tickets 
C)  automobile transmissions 
D)  telephones 
A)  libraries 
B)  hockey tickets 
C)  automobile transmissions 
D)  telephones

Question 11

According to option pricing theory, a higher dividend payout would cause the put option premium to

Accepted Answer

A)  increase 
B)  decrease 
C)  remain the same 
D)  any of the above can occur 
A)  increase 
B)  decrease 
C)  remain the same 
D)  any of the above can occur

Question 12

Writing an option is

Accepted Answer

A)  selling an option as an opening transaction 
B)  selling an option as a closing transaction 
C)  buying an option as an opening transaction 
D)  buying an option as a closing transaction 
A)  selling an option as an opening transaction 
B)  selling an option as a closing transaction 
C)  buying an option as an opening transaction 
D)  buying an option as a closing transaction

Question 13

A stock priced at $55 per share will most likely have option striking prices _____ apart.

Accepted Answer

A)  $1 
B)  $2 
C)  $4 
D)  $5 
A)  $1 
B)  $2 
C)  $4 
D)  $5

Question 14

Which of the following gives its owner the right to buy?

Accepted Answer

A)  Straddle 
B)  Put option 
C)  Call option 
D)  Spread 
A)  Straddle 
B)  Put option 
C)  Call option 
D)  Spread

Question 15

If the stock price is 27, the strike price is 30, and the call premium is 2, the time value is

Accepted Answer

A)  -2 
B)  0 
C)  2 
D)  3 
A)  -2 
B)  0 
C)  2 
D)  3

Question 16

Who keeps the option premium no matter what?

Accepted Answer

A)  The Options Clearing Corporation 
B)  The option writer 
C)  The option buyer 
D)  The option writer and the option buyer split it 
A)  The Options Clearing Corporation 
B)  The option writer 
C)  The option buyer 
D)  The option writer and the option buyer split it

Exam 17: Principles of Options and Option Pricing

The delta for a call option will always satisfy which of the following conditions?

A famous option-pricing model was developed by

On which of the following exchanges are the fewest options traded?

An option contract usually covers ____ shares.

An option which can be exercised anytime is a(n)

An increase in which of the following will cause a call option to decline in value?

Delta is the

If the stock price is 54, the exercise price is 50, and the put premium is 1, what is the time value?

If the stock price is 27, the strike price is 30, and the put premium is 5, the intrinsic value is

The book used an example of call options and

According to option pricing theory, a higher dividend payout would cause the put option premium to

Writing an option is

A stock priced at $55 per share will most likely have option striking prices _____ apart.

Which of the following gives its owner the right to buy?

If the stock price is 27, the strike price is 30, and the call premium is 2, the time value is

Who keeps the option premium no matter what?

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

The Mathematics of Diversification

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

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