Question 1

When the exercise price of a call option is higher than the current price of the stock,the option is said to be:

Accepted Answer

A) at-the-money. 
B) in-the-money. 
C) out-of-the-money. 
D) trading at par. 
E) trading below par. 
A) at-the-money. 
B) in-the-money. 
C) out-of-the-money. 
D) trading at par. 
E) trading below par.

Question 2

ABX corporation stock is currently trading for $37.60.A one-year European call option on ABX is currently trading for $7.23,and a one-year European put option on ABX with the same strike price is currently trading for $0.76.If the stock pays no dividends,and the risk-free rate is 3% per year,what is the strike price of the options?

Accepted Answer

A) $30.50 
B) $46.96 
C) $45.39 
D) $31.13 
E) $32.06 
A) $30.50 
B) $46.96 
C) $45.39 
D) $31.13 
E) $32.06

Question 3

The Black-Scholes formula is notable because it does NOT require us to know:

Accepted Answer

A) the expected return on a stock. 
B) the risk-free rate. 
C) the volatility of the stock. 
D) the dividend rate on the stock. 
E) the stock price. 
A) the expected return on a stock. 
B) the risk-free rate. 
C) the volatility of the stock. 
D) the dividend rate on the stock. 
E) the stock price.

Question 4

Standard stock options are traded and bought and sold through dealers only and cannot be bought via an exchange.

Accepted Answer

A) True 
 B)False

Question 5

You have shorted a call option on WSJ stock with a strike price of $50.The option will expire in exactly six months.If the stock is trading at $60 in three months,what will you owe for each share in the contract?

Accepted Answer

A) $0 
B) $60 
C) $50 
D) $10 
E) $40 
A) $0 
B) $60 
C) $50 
D) $10 
E) $40

Question 6

You have shorted a call option on WSJ stock with a strike price of $50.The option will expire in exactly six months.If the stock is trading at $45 in three months,what will you owe for each share in the contract?

Accepted Answer

A) $0 
B) $50 
C) $60 
D) $10 
E) $40 
A) $0 
B) $50 
C) $60 
D) $10 
E) $40

Question 7

Use the table for the questions below
Consider the following information on options from the CBOE for Rackspace.        
-Assume you want to sell 20 call option contracts with an exercise price closest to being at-the-money and that expires January 2011.The current price that you would receive for such a contract is:

Accepted Answer

A) $4500 
B) $2600 
C) $3900 
D) $4000 
E) $3500 
A) $4500 
B) $2600 
C) $3900 
D) $4000 
E) $3500

Question 8

An investor purchases a call option and its underlying stock on the same day.If the stock appreciates by 25%,the call option will appreciate by:

Accepted Answer

A) more than 25% 
B) less than 25% 
C) exactly 25% 
D) 0% 
E) less than 0% 
A) more than 25% 
B) less than 25% 
C) exactly 25% 
D) 0% 
E) less than 0%

Question 9

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

Accepted Answer

A) 1 
B) 3 
C) 2 
D) 4 
E) 0 
A) 1 
B) 3 
C) 2 
D) 4 
E) 0

Question 10

Use the table for the questions below
Consider the following information on options from the CBOE for Rackspace.        
-Assume you want to sell 20 put option contracts with an exercise price closest to being at-the-money and that expires January 2011.The current price that you would receive for such a contract is:

Accepted Answer

A) $1750 
B) $2000 
C) $3500 
D) $3900 
E) $4400 
A) $1750 
B) $2000 
C) $3500 
D) $3900 
E) $4400

Question 11

When is an option out-the-money?

Accepted Answer

An option is out-the

Question 12

________ is the relationship between the value of a stock,a bond,and call and put options on the same stock with the same exercise price.

Accepted Answer

A) Dividend exclusion 
B) Limit law 
C) Put-call parity 
D) Put option equality 
E) Option similarity 
A) Dividend exclusion 
B) Limit law 
C) Put-call parity 
D) Put option equality 
E) Option similarity

Question 13

The price of a European call option on Lululemon stock with an exercise price of $34.50 and one year to expiry is trading at $2.52.The current price of the stock is $34,and the risk-free rate is 4%.With no arbitrage,what must be the price of a European put on Lululemon with an exercise price of $34.50?

Accepted Answer

A) $3.37 
B) $0.71 
C) $1.69 
D) $2.52 
E) $0.50 
A) $3.37 
B) $0.71 
C) $1.69 
D) $2.52 
E) $0.50

Question 14

The ________ side of an options contract has the option to exercise,while the ________ side has an obligation to fulfill the contract.

Accepted Answer

A)  long, long 
B) short,long 
C) long,short 
D) short,short 
E) short,other 
A)  long, long 
B) short,long 
C) long,short 
D) short,short 
E) short,other

Question 15

Suppose a stock is currently trading for $35,and in one period it will either increase to $38 or decrease to $33.If the one-period risk-free rate is 6%,what is the price of a European put option that expires in one period and has an exercise price of $36?

Accepted Answer

A) $1.55 
B) $1.50 
C) $3.00 
D) $0.51 
E) $2.49 
A) $1.55 
B) $1.50 
C) $3.00 
D) $0.51 
E) $2.49

Question 16

A put option on a stock has an exercise price of $31.If the stock price at expiration is $33.40,what is the option payoff for a short put position?

Accepted Answer

A) $33.40 
B) -$2.40 
C) $2.40 
D) $0 
E) -$33.40 
A) $33.40 
B) -$2.40 
C) $2.40 
D) $0 
E) -$33.40

Question 17

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to:

Accepted Answer

A) -$1.00 
B) $1.00 
C) -$2.25 
D) $2.25 
E) $0 
A) -$1.00 
B) $1.00 
C) -$2.25 
D) $2.25 
E) $0

Question 18

Debt holders can be thought as owning the firm but having ________ a call option on the assets of the firm with a strike price equal to ________.

Accepted Answer

A) sold,face value of debt 
B) bought,face value of debt 
C) sold,value of equity 
D) bought,value of equity 
E) bought,market value of debt 
A) sold,face value of debt 
B) bought,face value of debt 
C) sold,value of equity 
D) bought,value of equity 
E) bought,market value of debt

Question 19

A call option on a stock has an exercise price of $22.25.If the stock price at expiration is $25,what is the option payoff for a long call position?

Accepted Answer

A) $2.75 
B) $0 
C) -$2.75 
D) $25 
E) $22.25 
A) $2.75 
B) $0 
C) -$2.75 
D) $25 
E) $22.25

Question 20

A(n)________ in the volatility of assets of the firm benefits ________ at a cost to debt holders.

Accepted Answer

A) decrease,equity holders 
B) increase,equity holders 
C) decrease,directors 
D) increase,directors 
E) decrease,suppliers 
A) decrease,equity holders 
B) increase,equity holders 
C) decrease,directors 
D) increase,directors 
E) decrease,suppliers

Exam 13: Risk and the Pricing of Options

When the exercise price of a call option is higher than the current price of the stock,the option is said to be:

The Black-Scholes formula is notable because it does NOT require us to know:

Standard stock options are traded and bought and sold through dealers only and cannot be bought via an exchange.

You have shorted a call option on WSJ stock with a strike price of $50.The option will expire in exactly six months.If the stock is trading at $60 in three months,what will you owe for each share in the contract?

You have shorted a call option on WSJ stock with a strike price of $50.The option will expire in exactly six months.If the stock is trading at $45 in three months,what will you owe for each share in the contract?

An investor purchases a call option and its underlying stock on the same day.If the stock appreciates by 25%,the call option will appreciate by:

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

When is an option out-the-money?

________ is the relationship between the value of a stock,a bond,and call and put options on the same stock with the same exercise price.

The ________ side of an options contract has the option to exercise,while the ________ side has an obligation to fulfill the contract.

Suppose a stock is currently trading for $35,and in one period it will either increase to $38 or decrease to $33.If the one-period risk-free rate is 6%,what is the price of a European put option that expires in one period and has an exercise price of $36?

A put option on a stock has an exercise price of $31.If the stock price at expiration is $33.40,what is the option payoff for a short put position?

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to:

Debt holders can be thought as owning the firm but having ________ a call option on the assets of the firm with a strike price equal to ________.

A call option on a stock has an exercise price of $22.25.If the stock price at expiration is $25,what is the option payoff for a long call position?

A(n)________ in the volatility of assets of the firm benefits ________ at a cost to debt holders.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

The side of an options contract has the option to exercise,while the side has an obligation to fulfill the contract.

Debt holders can be thought as owning the firm but having a call option on the assets of the firm with a strike price equal to .

A(n) in the volatility of assets of the firm benefits at a cost to debt holders.