Question 1

Use the figure for the question(s)below.  
-This graph depicts the payoffs of a:

Accepted Answer

A) long position in a put option at expiration. 
B) short position in a call option at expiration. 
C) short position in a put option at expiration. 
D) long position in a call option at expiration. 
E) long position in a call option before expiration. 
A) long position in a put option at expiration. 
B) short position in a call option at expiration. 
C) short position in a put option at expiration. 
D) long position in a call option at expiration. 
E) long position in a call option before expiration.

Question 2

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

Accepted Answer

A) $0.50 
B) $0 
C) -$0.50 
D) $13.50 
E) $14 
A) $0.50 
B) $0 
C) -$0.50 
D) $13.50 
E) $14

Question 3

________ options allow the holder to exercise the option only on the expiration date.

Accepted Answer

A)  Canadian 
B)  American 
C)  European 
D) Brazilian 
E)  Chinese 
A)  Canadian 
B)  American 
C)  European 
D) Brazilian 
E)  Chinese

Question 4

When the exercise price of a call option is lower 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 5

The holder of a put option has:

Accepted Answer

A) the obligation to sell a security for a given price. 
B) the right to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the obligation to buy a security for a given price. 
E) the short position in the contract. 
A) the obligation to sell a security for a given price. 
B) the right to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the obligation to buy a security for a given price. 
E) the short position in the contract.

Question 6

When the exercise price of an option is equal to 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 7

Although the payouts on a long position in an options contract are never negative,the profit from purchasing and holding it could be negative.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will increase the value of a call option?

Accepted Answer

A) a decrease in the time to maturity 
B) a decrease in the stock price 
C) a decrease in the stock's volatility 
D) a decrease in the exercise price 
E) a decrease in the risk-free rate 
A) a decrease in the time to maturity 
B) a decrease in the stock price 
C) a decrease in the stock's volatility 
D) a decrease in the exercise price 
E) a decrease in the risk-free rate

Question 9

The price of a call option on Microsoft stock with a maturity of six months and a strike price of $40 is $3.50,and the price of the stock is $38.50.The price of a put option on the same stock with the same strike price and time to maturity is $1.25.Calculate the risk-free rate.

Accepted Answer

A) 6.36% 
B) 9.33% 
C) 1.99% 
D) 18.52% 
E) 10.34% 
A) 6.36% 
B) 9.33% 
C) 1.99% 
D) 18.52% 
E) 10.34%

Question 10

What are European options?

Accepted Answer

European options,allow their h

Question 11

What is the long position of an options contract?

Accepted Answer

The option buyer or

Question 12

The price of a European put option on Air Canada stock with an exercise price of $10 and one year to expiry is trading at $1.55.The current price of the stock is $11,and the risk-free rate is 5%.With no arbitrage,what must be the price of a European call on Air Canada with an exercise price of $10?

Accepted Answer

A) $2.55 
B) $1.07 
C) $0.95 
D) $1.55 
E) $3.03 
A) $2.55 
B) $1.07 
C) $0.95 
D) $1.55 
E) $3.03

Use the figure for the question(s)below. -This graph depicts the payoffs of a:

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

________ options allow the holder to exercise the option only on the expiration date.

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

The holder of a put option has:

When the exercise price of an option is equal to the current price of the stock,the option is said to be:

Although the payouts on a long position in an options contract are never negative,the profit from purchasing and holding it could be negative.

Which of the following will increase the value of a call option?

The price of a call option on Microsoft stock with a maturity of six months and a strike price of $40 is $3.50,and the price of the stock is $38.50.The price of a put option on the same stock with the same strike price and time to maturity is $1.25.Calculate the risk-free rate.

What are European options?

What is the long position of an options contract?

The price of a European put option on Air Canada stock with an exercise price of $10 and one year to expiry is trading at $1.55.The current price of the stock is $11,and the risk-free rate is 5%.With no arbitrage,what must be the price of a European call on Air Canada with an exercise price of $10?

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

Exam 13: Risk and the Pricing of Options

Use the figure for the question(s)below. -This graph depicts the payoffs of a:

A call option on a stock has an exercise price of $14.If the stock price at expiration is $13.50,what is the option payoff for a long call position?

________ options allow the holder to exercise the option only on the expiration date.

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

The holder of a put option has:

When the exercise price of an option is equal to the current price of the stock,the option is said to be:

Although the payouts on a long position in an options contract are never negative,the profit from purchasing and holding it could be negative.

Which of the following will increase the value of a call option?

The price of a call option on Microsoft stock with a maturity of six months and a strike price of $40 is $3.50,and the price of the stock is $38.50.The price of a put option on the same stock with the same strike price and time to maturity is $1.25.Calculate the risk-free rate.

What are European options?

What is the long position of an options contract?

The price of a European put option on Air Canada stock with an exercise price of $10 and one year to expiry is trading at $1.55.The current price of the stock is $11,and the risk-free rate is 5%.With no arbitrage,what must be the price of a European call on Air Canada with an exercise price of $10?

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