Question 1

If the hedge ratio is 0.50, this indicates that the portfolio should hold

Accepted Answer

A)  two shares of stock for every call option written. 
B)  one share of stock for every two call options written. 
C)  two shares of stock for every call option purchased. 
D)  one share of stock for every two call options purchased. 
E)  two call options for every put option written. 
A)  two shares of stock for every call option written. 
B)  one share of stock for every two call options written. 
C)  two shares of stock for every call option purchased. 
D)  one share of stock for every two call options purchased. 
E)  two call options for every put option written. B

Question 2

The Black-Scholes model assumes that stock price movements can be described by

Accepted Answer

A)  geometric moving averages. 
B)  arithmetic moving averages. 
C)  regression towards the mean. 
D)  geometric Brownian motion. 
E)  stochastic time lags. 
A)  geometric moving averages. 
B)  arithmetic moving averages. 
C)  regression towards the mean. 
D)  geometric Brownian motion. 
E)  stochastic time lags. D

Question 3

In the Black-Scholes model N(d1) represents the

Accepted Answer

A)  hedge ratio. 
B)  partial derivative of the call's value with respect to the stock price. 
C)  change in the option's value given a one dollar change in the underlying security's price. 
D)  Option's delta. 
E)  all of the above. 
A)  hedge ratio. 
B)  partial derivative of the call's value with respect to the stock price. 
C)  change in the option's value given a one dollar change in the underlying security's price. 
D)  Option's delta. 
E)  all of the above. E

Question 4

A foreign currency option contract traded on US exchanges allows for the sale or purchase of a set amount of

Accepted Answer

A)  US currency at a floating exchange rate. 
B)  US currency at a fixed exchange rate. 
C)  foreign currency at a floating exchange rate. 
D)  foreign currency at a fixed exchange rate. 
E)  none of the above. 
A)  US currency at a floating exchange rate. 
B)  US currency at a fixed exchange rate. 
C)  foreign currency at a floating exchange rate. 
D)  foreign currency at a fixed exchange rate. 
E)  none of the above.

Question 5

A vertical spread involves buying and selling call options in the same stock with

Accepted Answer

A)  a different time period but same price. 
B)  a different time period and different price. 
C)  the same time period and price. 
D)  the same time period but different price. 
E)  options in different markets. 
A)  a different time period but same price. 
B)  a different time period and different price. 
C)  the same time period and price. 
D)  the same time period but different price. 
E)  options in different markets.

Question 6

Consider the following information on put and call options for Abel Group   Calculate the net value of a protective put position at a stock price at expiration of €20, and a stock price at expiration of €45.

Accepted Answer

A)  €6.35, €18.85 
B)  €29.65, €42.15 
C)  €21.65, €34.15 
D)  €8, €8 
E)  −€8, −€8 
A)  €6.35, €18.85 
B)  €29.65, €42.15 
C)  €21.65, €34.15 
D)  €8, €8 
E)  −€8, −€8

Question 7

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

Accepted Answer

A)  the same expiration date but different exercise prices. 
B)  the same exercise price but different expiration dates. 
C)  different exercise prices and different expiration dates. 
D)  the same exercise price and the same expiration month. 
E)  traded in different markets. 
A)  the same expiration date but different exercise prices. 
B)  the same exercise price but different expiration dates. 
C)  different exercise prices and different expiration dates. 
D)  the same exercise price and the same expiration month. 
E)  traded in different markets.

Question 8

A stock currently trades for €130 per share. Options on the stock are available with a strike price of €125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35. Use the Black-Scholes option pricing model to calculate the price of a call option.

Accepted Answer

A)  €5.19 
B)  €4.35 
C)  €3.93 
D)  €6.19 
E)  €8.17 
A)  €5.19 
B)  €4.35 
C)  €3.93 
D)  €6.19 
E)  €8.17

Question 9

Assume that you have just sold a stock for a loss at a price of £75, for tax purposes. You still wish to maintain exposure to the sold stock. Suppose that you buy a call with a strike price of £70 and a price of £6.75. Calculate the effective price paid to repurchase the stock if the price after 35 days is £65.

Accepted Answer

A)  £71.75 
B)  £76.75 
C)  £58.25 
D)  £81.75 
E)  None of the above 
A)  £71.75 
B)  £76.75 
C)  £58.25 
D)  £81.75 
E)  None of the above

Question 10

In the Black-Scholes option pricing model, an increase in security price (S) will cause

Accepted Answer

A)  an increase in call value and an increase in put value. 
B)  an increase in call value and a decrease in put value. 
C)  a decrease in call value and an increase in put value. 
D)  a decrease in call value and a decrease in put value. 
E)  an increase in call value and an increase or decrease in put value. 
A)  an increase in call value and an increase in put value. 
B)  an increase in call value and a decrease in put value. 
C)  a decrease in call value and an increase in put value. 
D)  a decrease in call value and a decrease in put value. 
E)  an increase in call value and an increase or decrease in put value.

Question 11

In a money spread, an investor would

Accepted Answer

A)  Buy two out-of-the-money call options on the same stock with different exercise dates. 
B)  Buy two in-the-money call options on the same stock with different exercise dates. 
C)  Sell two out-of-the-money call options on the same stock with different exercise dates. 
D)  Sell two in-the-money call options on the same stock with different exercise dates. 
E)  Sell an out-of-the-money call and purchase an in-the-money call on the same stock with the same exercise date. 
A)  Buy two out-of-the-money call options on the same stock with different exercise dates. 
B)  Buy two in-the-money call options on the same stock with different exercise dates. 
C)  Sell two out-of-the-money call options on the same stock with different exercise dates. 
D)  Sell two in-the-money call options on the same stock with different exercise dates. 
E)  Sell an out-of-the-money call and purchase an in-the-money call on the same stock with the same exercise date.

Question 12

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2, you would be

Accepted Answer

A)  bullish and taking a high risk. 
B)  bullish and conservative. 
C)  bearish and taking a high risk. 
D)  bearish and conservative. 
E)  neutral. 
A)  bullish and taking a high risk. 
B)  bullish and conservative. 
C)  bearish and taking a high risk. 
D)  bearish and conservative. 
E)  neutral.

Question 13

Options on futures contracts are very popular because

Accepted Answer

A)  they require the holder to purchase at a future date. 
B)  of their ability to create leverage. 
C)  the seller of the futures contract is under no obligation. 
D)  the amount of the underlying commodity is negotiable. 
E)  none of the above. 
A)  they require the holder to purchase at a future date. 
B)  of their ability to create leverage. 
C)  the seller of the futures contract is under no obligation. 
D)  the amount of the underlying commodity is negotiable. 
E)  none of the above.

Question 14

Refer to the previous question. Calculate the price of the put option.

Accepted Answer

A)  €1.086 
B)  €0.862 
C)  €6.234 
D)  €0.623 
E)  €2.317 
A)  €1.086 
B)  €0.862 
C)  €6.234 
D)  €0.623 
E)  €2.317

Question 15

The value of a call option is positively related to

Accepted Answer

A)  underlying stock price. 
B)  time to expiration 
C)  exercise price. 
D)  a and b 
E)  b and c 
A)  underlying stock price. 
B)  time to expiration 
C)  exercise price. 
D)  a and b 
E)  b and c

If the hedge ratio is 0.50, this indicates that the portfolio should hold

The Black-Scholes model assumes that stock price movements can be described by

In the Black-Scholes model N(d1) represents the

A foreign currency option contract traded on US exchanges allows for the sale or purchase of a set amount of

A vertical spread involves buying and selling call options in the same stock with

Consider the following information on put and call options for Abel Group Calculate the net value of a protective put position at a stock price at expiration of €20, and a stock price at expiration of €45.

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

In the Black-Scholes option pricing model, an increase in security price (S) will cause

In a money spread, an investor would

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2, you would be

Options on futures contracts are very popular because

Refer to the previous question. Calculate the price of the put option.

The value of a call option is positively related to

The Investment Process

The Global Market Investment Decision

Securities Markets: Organization and Operation

Efficient Capital Markets

Portfolio Management

Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

Derivative Markets and Securities

Forward and Futures Contracts

Professional Money Management, Alternative Assets and Industry Ethics

Evaluation of Portfolio Performance

Swap Contracts, Convertible Securities and Other Embedded Derivatives

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Exam 19: Option Contracts

If the hedge ratio is 0.50, this indicates that the portfolio should hold

The Black-Scholes model assumes that stock price movements can be described by

In the Black-Scholes model N(d1) represents the

A foreign currency option contract traded on US exchanges allows for the sale or purchase of a set amount of

A vertical spread involves buying and selling call options in the same stock with

Consider the following information on put and call options for Abel Group Calculate the net value of a protective put position at a stock price at expiration of €20, and a stock price at expiration of €45.

A calendar spread requires the purchase and sale of two calls or two puts in the same stock with

In the Black-Scholes option pricing model, an increase in security price (S) will cause

In a money spread, an investor would

If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an October option with an exercise price of 60 for 2, you would be

Options on futures contracts are very popular because

Refer to the previous question. Calculate the price of the put option.

The value of a call option is positively related to

The Investment Process

The Global Market Investment Decision

Securities Markets: Organization and Operation

Efficient Capital Markets

Portfolio Management

Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

Derivative Markets and Securities

Forward and Futures Contracts

Professional Money Management, Alternative Assets and Industry Ethics

Evaluation of Portfolio Performance

Swap Contracts, Convertible Securities and Other Embedded Derivatives

Filters