Question 1

Other things equal,the price of a stock call option is positively correlated with the following factors except

Accepted Answer

A)  the stock price. 
B)  the time to expiration. 
C)  the stock volatility. 
D)  the exercise price. 
E)  none of these. 
A)  the stock price. 
B)  the time to expiration. 
C)  the stock volatility. 
D)  the exercise price. 
E)  none of these. D

Question 2

A stock option has an intrinsic value of zero if the option is

Accepted Answer

A)  at the money. 
B)  out of the money. 
C)  in the money. 
D)  a and c. 
E)  a and b. 
A)  at the money. 
B)  out of the money. 
C)  in the money. 
D)  a and c. 
E)  a and b. E

Question 3

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

Accepted Answer

A)  2.76 
B)  2.30 
C)  -7.67 
D)  -2.76 
E)  -2.30 
A)  2.76 
B)  2.30 
C)  -7.67 
D)  -2.76 
E)  -2.30 E

Question 4

The gamma of an option is

Accepted Answer

A)  the volatility level for the stock that the option price implies. 
B)  the continued updating of the hedge ratio as time passes. 
C)  the percentage change in the stock call option price divided by the percentage change in the stock price. 
D)  the sensitivity of the delta to the stock price. 
E)  the volatility level for the stock that the option price implies and the percentage change in the stock call option price divided by the percentage change in the stock price. 
A)  the volatility level for the stock that the option price implies. 
B)  the continued updating of the hedge ratio as time passes. 
C)  the percentage change in the stock call option price divided by the percentage change in the stock price. 
D)  the sensitivity of the delta to the stock price. 
E)  the volatility level for the stock that the option price implies and the percentage change in the stock call option price divided by the percentage change in the stock price.

Question 5

Discuss the relationship between option prices and time to expiration,volatility of the underlying stocks,and the exercise price.

Accepted Answer

The longer the time to expiration,the hi

Question 6

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the option has delta of .5,what is its elasticity?

Accepted Answer

A)  4.17 
B)  2.32 
C)  1.79 
D)  0.5 
E)  1.5 
A)  4.17 
B)  2.32 
C)  1.79 
D)  0.5 
E)  1.5

Question 7

Vega is defined as

Accepted Answer

A)  the change in the value of an option for a dollar change in the price of the underlying asset. 
B)  the change in the value of the underlying asset for a dollar change in the call price. 
C)  the percentage change in the value of an option for a one percent change in the value of the underlying asset. 
D)  the change in the volatility of the underlying stock price. 
E)  the sensitivity of an option's price to changes in volatility. 
A)  the change in the value of an option for a dollar change in the price of the underlying asset. 
B)  the change in the value of the underlying asset for a dollar change in the call price. 
C)  the percentage change in the value of an option for a one percent change in the value of the underlying asset. 
D)  the change in the volatility of the underlying stock price. 
E)  the sensitivity of an option's price to changes in volatility.

Question 8

Dollar movements in option prices are ________ than dollar movements in the stock price,and rate of return volatility of options is ________ than stock return volatility.

Accepted Answer

A)  less,less 
B)  greater,greater 
C)  less,greater 
D)  greater,less 
E)  There is no particular pattern. 
A)  less,less 
B)  greater,greater 
C)  less,greater 
D)  greater,less 
E)  There is no particular pattern.

Question 9

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that

Accepted Answer

A)  the call price would increase. 
B)  the call price would decrease. 
C)  the call price would not change. 
D)  the put price would decrease. 
E)  the put price would not change. 
A)  the call price would increase. 
B)  the call price would decrease. 
C)  the call price would not change. 
D)  the put price would decrease. 
E)  the put price would not change.

Question 10

Before expiration the time value of an in the money stock option is always

Accepted Answer

A)  equal to zero. 
B)  positive. 
C)  negative. 
D)  equal to the stock price minus the exercise price. 
E)  none of these. 
A)  equal to zero. 
B)  positive. 
C)  negative. 
D)  equal to the stock price minus the exercise price. 
E)  none of these.

Question 11

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.What is the time value of the call?

Accepted Answer

A)  $8 
B)  $12 
C)  $0 
D)  $4 
E)  cannot be determined without more information. 
A)  $8 
B)  $12 
C)  $0 
D)  $4 
E)  cannot be determined without more information.

Question 12

Which Excel formula is used to execute the Black-Scholes option pricing model?

Accepted Answer

A)  NORMAL 
B)  ABNORMAL 
C)  NORMSDIST 
D)  DIST 
E)  NORMALDIST 
A)  NORMAL 
B)  ABNORMAL 
C)  NORMSDIST 
D)  DIST 
E)  NORMALDIST

Question 13

Relative to non-dividend-paying European calls,otherwise identical American call options

Accepted Answer

A)  are less valuable. 
B)  are more valuable. 
C)  are equal in value. 
D)  will always be exercised earlier. 
E)  none of these. 
A)  are less valuable. 
B)  are more valuable. 
C)  are equal in value. 
D)  will always be exercised earlier. 
E)  none of these.

Question 14

Rubinstein (1994)observed that the performance of the Black-Scholes model had deteriorated in recent years,and he attributed this to

Accepted Answer

A)  investor fears of another market crash. 
B)  higher than normal dividend payouts. 
C)  early exercise of American call options. 
D)  decreases in transaction costs. 
E)  none of these. 
A)  investor fears of another market crash. 
B)  higher than normal dividend payouts. 
C)  early exercise of American call options. 
D)  decreases in transaction costs. 
E)  none of these.

Question 15

The intrinsic value of an at-the-money put option is equal to

Accepted Answer

A)  the stock price minus the exercise price. 
B)  the put premium. 
C)  zero. 
D)  the exercise price minus the stock price. 
E)  None of these is correct 
A)  the stock price minus the exercise price. 
B)  the put premium. 
C)  zero. 
D)  the exercise price minus the stock price. 
E)  None of these is correct

Question 16

A hedge ratio for a call option is ________ and a hedge ratio for a put option is __________.

Accepted Answer

A)  negative,positive 
B)  negative,negative 
C)  positive,negative 
D)  positive,positive 
E)  zero,zero 
A)  negative,positive 
B)  negative,negative 
C)  positive,negative 
D)  positive,positive 
E)  zero,zero

Question 17

The elasticity of a stock put option is always

Accepted Answer

A)  positive. 
B)  smaller than one. 
C)  negative 
D)  infinite 
E)  none of these. 
A)  positive. 
B)  smaller than one. 
C)  negative 
D)  infinite 
E)  none of these.

Question 18

The dollar change in the value of a stock call option is always

Accepted Answer

A)  lower than the dollar change in the value of the stock. 
B)  higher than the dollar change in the value of the stock. 
C)  negatively correlated with the change in the value of the stock. 
D)  b and c. 
E)  a and c. 
A)  lower than the dollar change in the value of the stock. 
B)  higher than the dollar change in the value of the stock. 
C)  negatively correlated with the change in the value of the stock. 
D)  b and c. 
E)  a and c.

Question 19

You are evaluating a stock that is currently selling for $30 per share.Over the investment period you think that the stock price might get as low as $25 or as high as $40.There is a call option available on the stock with an exercise price of $35.Answer the following questions about hedging your position in the stock.Assume that you will hold one share.
What is the hedge ratio?
How much would you borrow to purchase the stock?
What is the amount of your net investment in the stock?
Complete the table below to show the value of your stock portfolio at the end of the holding period.

Accepted Answer

@#IMG-DLM& 
How many call options will you combine

Question 20

Use the Black-Scholes Option Pricing Model for the following problem.Given: SO= $70;X = $70;T = 70 days;r = 0.06 annually (0.0001648 daily);σ = 0.020506 (daily).No dividends will be paid before option expires.The value of the call option is

Accepted Answer

A)  $10.16. 
B)  $5.16. 
C)  $0.00. 
D)  $2.16. 
E)  none of these. 
A)  $10.16. 
B)  $5.16. 
C)  $0.00. 
D)  $2.16. 
E)  none of these.

Exam 18: Performance Evaluation and Active Portfolio Management

Other things equal,the price of a stock call option is positively correlated with the following factors except

A stock option has an intrinsic value of zero if the option is

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

The gamma of an option is

Discuss the relationship between option prices and time to expiration,volatility of the underlying stocks,and the exercise price.

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the option has delta of .5,what is its elasticity?

Vega is defined as

Dollar movements in option prices are ________ than dollar movements in the stock price,and rate of return volatility of options is ________ than stock return volatility.

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that

Before expiration the time value of an in the money stock option is always

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.What is the time value of the call?

Which Excel formula is used to execute the Black-Scholes option pricing model?

Relative to non-dividend-paying European calls,otherwise identical American call options

Rubinstein (1994)observed that the performance of the Black-Scholes model had deteriorated in recent years,and he attributed this to

The intrinsic value of an at-the-money put option is equal to

A hedge ratio for a call option is ________ and a hedge ratio for a put option is __________.

The elasticity of a stock put option is always

The dollar change in the value of a stock call option is always

Use the Black-Scholes Option Pricing Model for the following problem.Given: SO= $70;X = $70;T = 70 days;r = 0.06 annually (0.0001648 daily);σ = 0.020506 (daily).No dividends will be paid before option expires.The value of the call option is

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Dollar movements in option prices are than dollar movements in the stock price,and rate of return volatility of options is than stock return volatility.

A hedge ratio for a call option is and a hedge ratio for a put option is __.

Use the Black-Scholes Option Pricing Model for the following problem.Given: S_O= $70;X = $70;T = 70 days;r = 0.06 annually (0.0001648 daily);σ = 0.020506 (daily).No dividends will be paid before option expires.The value of the call option is