Exam 13: Risk and the Pricing of Options

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Using options to reduce risk is called:

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A put option on a stock has an exercise price of $42.If the stock price at expiration is $35,what is the option payoff for a short put position?

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How many of the December 2010 put options are in-the-money?

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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?

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What is a call option?

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A call option on a stock has an exercise price of $12.15.If the stock price at expiration is $11,what is the option payoff for a short call position?

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

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The open interest for a January 2009 put option that is closest to being at-the-money is:

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A put option gives the owner the right to ________ an asset at a fixed price at some future date.

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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?

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When a stock price appreciates by a certain percentage,a call option on the same stock appreciates by a lower percentage amount.

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Using an option to reduce the risk of a portfolio is called ________,while using options to bet on the direction of the market or an asset is called ________.

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How many of the January 2009 put options are out-of-the-money?

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A European option with a later exercise date may trade potentially for less than an otherwise identical option with an earlier exercise date.

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A one-year European call option on ABX corporation with a strike price of $50 is currently trading for $4.30,and a one-year European put option on ABX with the same strike price is currently trading for $1.47.If the stock pays no dividends and the risk free rate is 4% per year,what is the current price of ABX stock?

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A share of stock can be thought of as a put option on the firm's assets with a strike price equal to the face value of debt.

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Hedging is accomplished by holding contracts or securities whose payoffs are positively correlated with some risk exposure that already exists.

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American options allow their holders to exercise the option only on the expiration date.

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The writer of a call option has:

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A share of stock is a ________ option on the value of assets of the firm with a strike price equal to ________.

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