Exam 20: Understanding Options

For European options,the value of a call plus the present value of the exercise price is equal to:

All else equal,as the underlying stock price increases:

All else equal,the closer an option gets to expiration,the lower the option price.

The owner of a regular exchange-listed call-option on a stock:

Why would an option holder almost never exercise an option early?

The two principal options exchanges in the U.S.are the: I.International Securities Exchange; II.New York Stock Exchange; III.NASDAQ; IV.Chicago Board of Options Exchange

A put option gives the owner the right:

The value of a call option is positively related to the following: i.underlying stock price; II)risk-free rate; III)time to expiration; IV)volatility of the underlying stock price

Briefly explain what is meant by protective put.

An increase in the underlying stock price results in an increase in a call option's price.

It is possible to replicate an investment in a call option by a levered investment in the underlying asset.

The writer (seller)of a regular exchange-listed call-option on a stock:

The value of a call option is negatively related to the: i.exercise price; II)risk-free rate; III)time to expiration

Buying an in-the-money option will almost always produce a profit.

The value of any option (both call and put options)is positively related to the: i.volatility of the underlying stock price; II)time to expiration; III)risk-free rate

Figure 2 depicts the:

For European options,the value of a call minus the value of a put is equal to:

Buying a call option,investing the present value of the exercise price in T-bills,and short-selling the underlying share is the same as:

Call options can have a positive value at expiration even when the underlying stock is worthless.

Explain the difference between a European option and an American option.