Question 1

Which one of the following is another term for implied volatility?

Accepted Answer

A) implied delta 
B) implied standard deviation 
C) implied alpha 
D) implied beta 
E) implied gamma 
A) implied delta 
B) implied standard deviation 
C) implied alpha 
D) implied beta 
E) implied gamma

Question 2

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

Accepted Answer

A) The model assumes a stock pays a constant annual dividend. 
B) The model expresses time in terms of years. 
C) The model is based on American-style options. 
D) The model assumes that the current stock price is equal to the strike price. 
E) The model assumes the put is in-the-money. 
A) The model assumes a stock pays a constant annual dividend. 
B) The model expresses time in terms of years. 
C) The model is based on American-style options. 
D) The model assumes that the current stock price is equal to the strike price. 
E) The model assumes the put is in-the-money.

Question 3

You own 1,200 shares of Banner Co.stock that is currently priced at $42 a share.Given this price,the option delta for a $40 call option on this stock is .664.How many $40 call options do you need to hedge against a -$1 change in the price of the stock?

Accepted Answer

A) buy 1,613 options 
B) buy 1,713 options 
C) buy 1,8.7 options 
D) write 1,713 options 
E) write 1,807 options 
A) buy 1,613 options 
B) buy 1,713 options 
C) buy 1,8.7 options 
D) write 1,713 options 
E) write 1,807 options

Question 4

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A) buy 3 contracts 
B) buy 30 contracts 
C) buy 300 contracts 
D) write 3 contracts 
E) write 30 contracts 
A) buy 3 contracts 
B) buy 30 contracts 
C) buy 300 contracts 
D) write 3 contracts 
E) write 30 contracts

Question 5

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -.154.What is the call delta given these same variables?

Accepted Answer

A) -1.154 
B) -.846 
C) .846 
D) 1.154 
E) The answer cannot be determined based on the information provided. 
A) -1.154 
B) -.846 
C) .846 
D) 1.154 
E) The answer cannot be determined based on the information provided.

Question 6

Employee stock options grant an employee which one of the following rights?

Accepted Answer

A) right to sell shares in an S&P 500 index fund 
B) right to buy shares in an S&P 500 index fund 
C) right to sell shares of the employer's stock 
D) right to buy shares of the employer's stock 
E) right to buy shares in the employer's retirement plan 
A) right to sell shares in an S&P 500 index fund 
B) right to buy shares in an S&P 500 index fund 
C) right to sell shares of the employer's stock 
D) right to buy shares of the employer's stock 
E) right to buy shares in the employer's retirement plan

Question 7

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Accepted Answer

A) $0.61 
B) $0.72 
C) $0.93 
D) $1.11 
E) $1.36 
A) $0.61 
B) $0.72 
C) $0.93 
D) $1.11 
E) $1.36

Question 8

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

Accepted Answer

A) calculated alpha 
B) estimated variance 
C) implied theta 
D) VIX 
E) implied standard deviation 
A) calculated alpha 
B) estimated variance 
C) implied theta 
D) VIX 
E) implied standard deviation

Question 9

Which one of the following variables is NOT included in the Black-Scholes option pricing model?

Accepted Answer

A) strike price 
B) time remaining until option expiration 
C) stock volatility as measured by standard deviation 
D) stock price 
E) market rate of return 
A) strike price 
B) time remaining until option expiration 
C) stock volatility as measured by standard deviation 
D) stock price 
E) market rate of return

Question 10

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio?
I.European style
II.American style
III.trade in whole or partial contracts
IV.cash settlement

Accepted Answer

A) III only 
B) I and III only 
C) I and IV only 
D) II and III only 
E) II and IV only 
A) III only 
B) I and III only 
C) I and IV only 
D) II and III only 
E) II and IV only

Question 11

Which of the following are typical characteristics of employee stock options?
I.originally issued with 10-year life
II.right to purchase stock at a designated price
III.exchange-traded
IV.vesting period

Accepted Answer

A) II only 
B) I and II only 
C) I and III only 
D) I, II, and IV only 
E) I, II, III, and IV 
A) II only 
B) I and II only 
C) I and III only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 12

Which one of the following situations will produce the highest call price,all else constant? Assume the options are all in-the-money.

Accepted Answer

A) $20 strike price; 45 days to option expiration 
B) $20 strike price; 60 days to option expiration 
C) $25 strike price; 45 days to option expiration 
D) $25 strike price; 60 days to option expiration 
E) Insufficient information is provided to answer this question. 
A) $20 strike price; 45 days to option expiration 
B) $20 strike price; 60 days to option expiration 
C) $25 strike price; 45 days to option expiration 
D) $25 strike price; 60 days to option expiration 
E) Insufficient information is provided to answer this question.

Which one of the following is another term for implied volatility?

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

You own 1,200 shares of Banner Co.stock that is currently priced at $42 a share.Given this price,the option delta for a $40 call option on this stock is .664.How many $40 call options do you need to hedge against a -$1 change in the price of the stock?

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -.154.What is the call delta given these same variables?

Employee stock options grant an employee which one of the following rights?

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

Which one of the following variables is NOT included in the Black-Scholes option pricing model?

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio? I.European style II.American style III.trade in whole or partial contracts IV.cash settlement

Which of the following are typical characteristics of employee stock options? I.originally issued with 10-year life II.right to purchase stock at a designated price III.exchange-traded IV.vesting period

Which one of the following situations will produce the highest call price,all else constant? Assume the options are all in-the-money.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 16: Option Valuation

Which one of the following is another term for implied volatility?

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

You own 1,200 shares of Banner Co.stock that is currently priced at $42 a share.Given this price,the option delta for a $40 call option on this stock is .664.How many $40 call options do you need to hedge against a -$1 change in the price of the stock?

You own 1,800 shares of Textile stock which is currently valued at $62 a share.The $65 put has a premium of $4.26 and a put delta of -.60.What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -.154.What is the call delta given these same variables?

Employee stock options grant an employee which one of the following rights?

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

Which one of the following variables is NOT included in the Black-Scholes option pricing model?

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio? I.European style II.American style III.trade in whole or partial contracts IV.cash settlement

Which of the following are typical characteristics of employee stock options? I.originally issued with 10-year life II.right to purchase stock at a designated price III.exchange-traded IV.vesting period

Which one of the following situations will produce the highest call price,all else constant? Assume the options are all in-the-money.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters