Question 1

A European option on a stock is more valuable than an otherwise similar American option on the same stock.

Accepted Answer

A) True 
 B)False

Question 2

A one-year European call option on ABX corporation with a strike price of $50 is currently trading for $1.45,and a one-year European put option on ABX with the same strike price is currently trading for $6.22.If the stock pays a one-time dividend of $1.50 in exactly 6 months,and the risk-free rate is 8% per year,what is the current price of ABX stock?

Accepted Answer

A)  $42.97 
B)  $43.03 
C)  $49.63 
D)  $52.53 
E)  $55.41 
A)  $42.97 
B)  $43.03 
C)  $49.63 
D)  $52.53 
E)  $55.41

Question 3

When a company writes a call option on new stock in the company,it is called a

Accepted Answer

A)  convertible bond. 
B)  put option. 
C)  stock option. 
D)  warrant. 
E)  stock. 
A)  convertible bond. 
B)  put option. 
C)  stock option. 
D)  warrant. 
E)  stock.

Question 4

A put option on a stock has an exercise price of $31.If the stock price at expiration is $33.40,what is the option payoff for a short put position?

Accepted Answer

A)  $33.40 
B)  -$2.40 
C)  $2.40 
D)  $0 
E)  -$33.40 
A)  $33.40 
B)  -$2.40 
C)  $2.40 
D)  $0 
E)  -$33.40

Question 5

________ is the relationship between the value of a stock,a bond,and call and put options on the same stock with the same exercise price.

Accepted Answer

A)  Dividend exclusion 
B)  Limit law 
C)  Put-call parity 
D)  Put option equality 
E)  Option similarity 
A)  Dividend exclusion 
B)  Limit law 
C)  Put-call parity 
D)  Put option equality 
E)  Option similarity

Question 6

Consider the following equation: C = P + S - PV(K)- PV(Div)
In this equation,what does the term C represent?

Accepted Answer

A)  the value of the call option 
B)  the stock's current price 
C)  the payoff of a zero-coupon bond 
D)  the strike price of the option 
E)  the value of the put option 
A)  the value of the call option 
B)  the stock's current price 
C)  the payoff of a zero-coupon bond 
D)  the strike price of the option 
E)  the value of the put option

Question 7

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:
  
-Assume you want to sell 20 put option contracts with an exercise price closest to being at-the-money and that expires January 2011.The current price that you would receive for such a contract is:

Accepted Answer

A)  $1750 
B)  $2000 
C)  $3500 
D)  $3900 
E)  $4400 
A)  $1750 
B)  $2000 
C)  $3500 
D)  $3900 
E)  $4400

Question 8

Suppose a stock is currently trading for $12,and in one period it will either increase to $15 or decrease to $8.If the one-period risk-free rate is 4%,what is the price of a European put option that expires in one period and has an exercise price of $10?

Accepted Answer

A)  $0.96 
B)  $1.92 
C)  $1.00 
D)  $2.00 
E)  $0.69 
A)  $0.96 
B)  $1.92 
C)  $1.00 
D)  $2.00 
E)  $0.69

Question 9

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

Accepted Answer

A)  $0.50 
B)  $0 
C)  -$0.50 
D)  $13.50 
E)  $14 
A)  $0.50 
B)  $0 
C)  -$0.50 
D)  $13.50 
E)  $14

Question 10

How is equity like a call option on the firm's assets?

Accepted Answer

If a firm's asset value does not exceed

Question 11

Suppose you purchase a call option for $4 and a strike price of $30.On the expiration day,the price of the stock is $40.What is the return on the call option if you hold your position until maturity?

Accepted Answer

A)  125% 
B)  130% 
C)  150% 
D)  170% 
E)  250% 
A)  125% 
B)  130% 
C)  150% 
D)  170% 
E)  250%

Question 12

The value of an otherwise identical call option is ________ if the strike price the holder must pay to buy the stock is ________.

Accepted Answer

A)  higher, higher 
B)  lower, lower 
C)  higher, lower 
D)  unchanged, lower 
E)  unchanged, higher 
A)  higher, higher 
B)  lower, lower 
C)  higher, lower 
D)  unchanged, lower 
E)  unchanged, higher

A European option on a stock is more valuable than an otherwise similar American option on the same stock.

When a company writes a call option on new stock in the company,it is called a

A put option on a stock has an exercise price of $31.If the stock price at expiration is $33.40,what is the option payoff for a short put position?

________ is the relationship between the value of a stock,a bond,and call and put options on the same stock with the same exercise price.

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation,what does the term C represent?

Suppose a stock is currently trading for $12,and in one period it will either increase to $15 or decrease to $8.If the one-period risk-free rate is 4%,what is the price of a European put option that expires in one period and has an exercise price of $10?

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

How is equity like a call option on the firm's assets?

Suppose you purchase a call option for $4 and a strike price of $30.On the expiration day,the price of the stock is $40.What is the return on the call option if you hold your position until maturity?

The value of an otherwise identical call option is if the strike price the holder must pay to buy the stock is .

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 13: Risk and the Pricing of Options

A European option on a stock is more valuable than an otherwise similar American option on the same stock.

When a company writes a call option on new stock in the company,it is called a

A put option on a stock has an exercise price of $31.If the stock price at expiration is $33.40,what is the option payoff for a short put position?

________ is the relationship between the value of a stock,a bond,and call and put options on the same stock with the same exercise price.

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation,what does the term C represent?

Suppose a stock is currently trading for $12,and in one period it will either increase to $15 or decrease to $8.If the one-period risk-free rate is 4%,what is the price of a European put option that expires in one period and has an exercise price of $10?

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

How is equity like a call option on the firm's assets?

Suppose you purchase a call option for $4 and a strike price of $30.On the expiration day,the price of the stock is $40.What is the return on the call option if you hold your position until maturity?

The value of an otherwise identical call option is ________ if the strike price the holder must pay to buy the stock is ________.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

The value of an otherwise identical call option is if the strike price the holder must pay to buy the stock is .