Question 1

The option pay-off diagram illustrates:

Accepted Answer

A)  the option pay-off when the option is purchased 
B)  the premium when the option is purchased 
C)  the option pay-off at-the-money 
D)  the option pay-off at maturity 
A)  the option pay-off when the option is purchased 
B)  the premium when the option is purchased 
C)  the option pay-off at-the-money 
D)  the option pay-off at maturity

Question 2

Using the Black-Scholes model,the delta of a put option is:

Accepted Answer

A)  $ N(d 1) $ 
B)  $ N(-d) $ 
C)  $ \mathrm{N}(\mathrm{d} 2) $ 
D)  $ \mathrm{N}(-\mathrm{d} 2) $ 
A)  $ N(d 1) $ 
B)  $ N(-d) $ 
C)  $ \mathrm{N}(\mathrm{d} 2) $ 
D)  $ \mathrm{N}(-\mathrm{d} 2) $

Question 3

Put-call parity states that,other things being equal,the price of a put will equal that of a call.

Accepted Answer

A) True 
 B)False

Question 4

The option valuation model of Black and Scholes allows for changes in the standard deviation of the underlying asset over time.

Accepted Answer

A) True 
 B)False

Question 5

A futures contract differs from an option contract in that the holder of a futures contract has a right but not an obligation to settle on a particular date.

Accepted Answer

A) True 
 B)False

Question 6

Given an expected price fall in the underlying asset,a reasonable strategy to profit from this information would be to sell a call written on the asset.

Accepted Answer

A) True 
 B)False

Question 7

A call option has a price of $2.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

Accepted Answer

A)  $ 0 $ 
B)  $ 0.50 $ 
C)  $ 0.66 $ 
D)  $ 1.16 $ 
A)  $ 0 $ 
B)  $ 0.50 $ 
C)  $ 0.66 $ 
D)  $ 1.16 $

Question 8

The method of estimating standard deviation advocated by Kritzman (1991)for use in the Black-Scholes model is based on historical time series.

Accepted Answer

A) True 
 B)False

Question 9

A bought bull spread can be created by buying a call option and selling a call option.

Accepted Answer

A) True 
 B)False

Question 10

The most difficult parameter to estimate in the Black-Scholes model is the:

Accepted Answer

A)  underlying asset price 
B)  risk-free rate of return 
C)  exercise price 
D)  one of the aboye 
A)  underlying asset price 
B)  risk-free rate of return 
C)  exercise price 
D)  one of the aboye

Question 11

A compound option is:

Accepted Answer

A)  an American call option written on an European call option 
B)  an American put option written on an European put option 
C)  an option that will be rolled forward when date of expiry takes effect 
D)  none of these choices 
A)  an American call option written on an European call option 
B)  an American put option written on an European put option 
C)  an option that will be rolled forward when date of expiry takes effect 
D)  none of these choices

Question 12

A call option has a price of $0.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bound error?

Accepted Answer

A)  $ 0 $ 
B)  $ 0.50 $ 
C)  $ 0.66 $ 
D)  $ 1.16 $ 
A)  $ 0 $ 
B)  $ 0.50 $ 
C)  $ 0.66 $ 
D)  $ 1.16 $

Question 13

Assume a one-period world with current share price of $5.00,interest rate of 8% over the period and a price increase factor of 1.25.Given this information,the current premium on a call option with an exercise price of $4.50 using the binomial model is:

Accepted Answer

A)  $ 1.0565 $ 
B)  $ 1.1131 $ 
C)  $ 1.1256 $ 
D)  $ 1,3042$ 
A)  $ 1.0565 $ 
B)  $ 1.1131 $ 
C)  $ 1.1256 $ 
D)  $ 1,3042$

Question 14

If the exercise price is equal to the underlying asset price,the option is said to be:

Accepted Answer

A)  on-the-money 
B)  out-of-the-money 
C)  in-the-money 
D)  none of these options 
A)  on-the-money 
B)  out-of-the-money 
C)  in-the-money 
D)  none of these options

Question 15

is created by combining a call option and a put option with the same time to maturity,but with the call strike price being greater than the put strike price.

Accepted Answer

A)  a straddle 
B)  a strap 
C)  a strip 
D)  a strangle 
A)  a straddle 
B)  a strap 
C)  a strip 
D)  a strangle

Question 16

A put option with 60 days to maturity,exercise price of $12.00,and the risk-free rate is 7% p.a.If a call option is trading at $2.24 and a put option with $0.06,what is the share price that will result in put-call parity holding?

Accepted Answer

A)  $ \$ 10 $ 
B)  $ \$ 12 $ 
C)  $ \$ 14 $ 
D)  $ \$ 16 $ 
A)  $ \$ 10 $ 
B)  $ \$ 12 $ 
C)  $ \$ 14 $ 
D)  $ \$ 16 $

Question 17

Assume a two-period world with a current share price of $21.00,an interest rate of 6.5% over the period,a price increase factor of 1.43 and a price decrease factor of 0.55.What are the possible end-of-period prices?

Accepted Answer

A)  $ \$ 18.70 $ and $ \$ 8.71 $ 
B)  $ \$ 21.25 $ and $ \$ 9.64 $ 
C)  $ \$ 22.61 $ and $ \$ 10.78 $ 
D)  $ \$ 30.03 $ and $ \$ 11.55 $ 
A)  $ \$ 18.70 $ and $ \$ 8.71 $ 
B)  $ \$ 21.25 $ and $ \$ 9.64 $ 
C)  $ \$ 22.61 $ and $ \$ 10.78 $ 
D)  $ \$ 30.03 $ and $ \$ 11.55 $

Question 18

Three of the most important characteristics of options are:

Accepted Answer

A)  premium, expiration date, exercise price 
B)  low transaction costs, flexibility, low liquidity 
C)  flexibility, high liquidity, high transaction costs 
D)  exercise price, low transaction costs, underlying asset 
A)  premium, expiration date, exercise price 
B)  low transaction costs, flexibility, low liquidity 
C)  flexibility, high liquidity, high transaction costs 
D)  exercise price, low transaction costs, underlying asset

Question 19

A put option with 60 days to maturity,exercise price of $12.00 and the risk-free rate is 5% p.a.If a call option is trading at $2.30 and a put option with $0.06 and the current share price is $14.00,what is the arbitrage possible per contract according to put-call parity?

Accepted Answer

A)  $ \$ 0.00 $ 
B)  $ \$ 0.02 $ 
C)  $ \$ 0.06 $ 
D)  $ \$ 0.10 $ 
A)  $ \$ 0.00 $ 
B)  $ \$ 0.02 $ 
C)  $ \$ 0.06 $ 
D)  $ \$ 0.10 $

Question 20

An American put option gives its holder the right to _________.

Accepted Answer

A) buy the underlying asset at the exercise price on or before the expiration date 
B) buy the underlying asset at the exercise price only at the expiration date 
C) sell the underlying asset at the exercise price on or before the expiration date 
D) sell the underlying asset at the exercise price only at the expiration date 
A) buy the underlying asset at the exercise price on or before the expiration date 
B) buy the underlying asset at the exercise price only at the expiration date 
C) sell the underlying asset at the exercise price on or before the expiration date 
D) sell the underlying asset at the exercise price only at the expiration date

The option pay-off diagram illustrates:

Using the Black-Scholes model,the delta of a put option is:

Put-call parity states that,other things being equal,the price of a put will equal that of a call.

The option valuation model of Black and Scholes allows for changes in the standard deviation of the underlying asset over time.

A futures contract differs from an option contract in that the holder of a futures contract has a right but not an obligation to settle on a particular date.

Given an expected price fall in the underlying asset,a reasonable strategy to profit from this information would be to sell a call written on the asset.

A call option has a price of $2.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

The method of estimating standard deviation advocated by Kritzman (1991)for use in the Black-Scholes model is based on historical time series.

A bought bull spread can be created by buying a call option and selling a call option.

The most difficult parameter to estimate in the Black-Scholes model is the:

A compound option is:

A call option has a price of $0.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bound error?

Assume a one-period world with current share price of $5.00,interest rate of 8% over the period and a price increase factor of 1.25.Given this information,the current premium on a call option with an exercise price of $4.50 using the binomial model is:

If the exercise price is equal to the underlying asset price,the option is said to be:

is created by combining a call option and a put option with the same time to maturity,but with the call strike price being greater than the put strike price.

A put option with 60 days to maturity,exercise price of $12.00,and the risk-free rate is 7% p.a.If a call option is trading at $2.24 and a put option with $0.06,what is the share price that will result in put-call parity holding?

Assume a two-period world with a current share price of $21.00,an interest rate of 6.5% over the period,a price increase factor of 1.43 and a price decrease factor of 0.55.What are the possible end-of-period prices?

Three of the most important characteristics of options are:

A put option with 60 days to maturity,exercise price of $12.00 and the risk-free rate is 5% p.a.If a call option is trading at $2.30 and a put option with $0.06 and the current share price is $14.00,what is the arbitrage possible per contract according to put-call parity?

An American put option gives its holder the right to _________.

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters

Exam 16: Option Contracts

The option pay-off diagram illustrates:

Using the Black-Scholes model,the delta of a put option is:

Put-call parity states that,other things being equal,the price of a put will equal that of a call.

The option valuation model of Black and Scholes allows for changes in the standard deviation of the underlying asset over time.

A futures contract differs from an option contract in that the holder of a futures contract has a right but not an obligation to settle on a particular date.

Given an expected price fall in the underlying asset,a reasonable strategy to profit from this information would be to sell a call written on the asset.

A call option has a price of $2.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

The method of estimating standard deviation advocated by Kritzman (1991)for use in the Black-Scholes model is based on historical time series.

A bought bull spread can be created by buying a call option and selling a call option.

The most difficult parameter to estimate in the Black-Scholes model is the:

A compound option is:

A call option has a price of $0.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bound error?

Assume a one-period world with current share price of $5.00,interest rate of 8% over the period and a price increase factor of 1.25.Given this information,the current premium on a call option with an exercise price of $4.50 using the binomial model is:

If the exercise price is equal to the underlying asset price,the option is said to be:

is created by combining a call option and a put option with the same time to maturity,but with the call strike price being greater than the put strike price.

A put option with 60 days to maturity,exercise price of $12.00,and the risk-free rate is 7% p.a.If a call option is trading at $2.24 and a put option with $0.06,what is the share price that will result in put-call parity holding?

Assume a two-period world with a current share price of $21.00,an interest rate of 6.5% over the period,a price increase factor of 1.43 and a price decrease factor of 0.55.What are the possible end-of-period prices?

Three of the most important characteristics of options are:

A put option with 60 days to maturity,exercise price of $12.00 and the risk-free rate is 5% p.a.If a call option is trading at $2.30 and a put option with $0.06 and the current share price is $14.00,what is the arbitrage possible per contract according to put-call parity?

An American put option gives its holder the right to _________.

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters