Question 1

All of the positions listed will benefit from a price decline, except:

Accepted Answer

A)   Short put
B)   Long put
C)   Short call
D)   Short stock A

Question 2

The premium on a long term call option on the market index with an exercise price of 950 is $12.00 when originally purchased. After 6 months the position is closed and the index spot price is 965. If interest rates are 0.5% per month, what is the Call Payoff?

Accepted Answer

A)   $2.64
B)   $12.00
C)   $12.36
D)   $15.00 D

Question 3

The spot price of the market index is $900. After 3 months the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. After 3 months what is the investorʹs profit or loss?

Accepted Answer

A)   $10 loss
B)   $0
C)   $10 gain
D)   $20 gain B

Question 4

Which type of option is least likely to be exercised?

Accepted Answer

A)   At-the-money
B)   In-the-money
C)   Near-the-money
D)   Out-of-the-money

Question 5

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put?

Accepted Answer

A)   $2.00 gain
B)   $2.00 loss
C)   $1.90 gain
D)   $1.90 loss

Question 6

Develop the payoff table for the previous question, using at least five different possible index prices, in addition to the strike price and breakeven price.

Accepted Answer

The answer of Develop the payoff table for the previous...

Question 7

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. Draw the payoff graph for the long put position at expiration. Include strike price, breakeven price, and max loss.

Accepted Answer

The answer of The spot price of the market index...

Question 8

An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss.

Accepted Answer

The answer of An investor has a long call option...

Question 9

A put option if purchased and held for 1 year. The Exercise price on the underlying asset is $40. If the current price of the asset is $36.45 and the future value of the original option premium is (- $1.62 ), what is the put profit, if any at the end of the year?

Accepted Answer

A)   $1.62
B)   $1.93
C)   $3.55
D)   $5.17

Question 10

Which of the following phrases is used to describe an option where immediate exercise results in a negative payoff?

Accepted Answer

A)   At-the-money
B)   In-the-money
C)   Near-the-money
D)   Out-of-the-money

Question 11

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position if the spot price of the market index rises to $920 by the expiration date?

Accepted Answer

A)   $20 gain
B)   $20 loss
C)   $10 gain
D)   $10 loss

Question 12

The spot price of the market index is $900. The annual rate of interest on treasuries is 4.8% (0.4% per month). After 3 months the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. What profit or loss will the writer of the call option earn if the option premium is $2.00?

Accepted Answer

A)   $2.00 gain
B)   $2.00 loss
C)   $2.02 gain
D)   $2.02 loss

Question 13

The premium on a call option on the market index with an exercise price of 1050 is $9.30 when originally purchased. After 2 months the position is closed and the index spot price is 1072. If interest rates are 0.5% per month, what is the Call Profit?

Accepted Answer

A)   $9.30
B)   $9.39
C)   $12.61
D)   $22.00

Question 14

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The annual rate of interest on treasuries is 4.8% (0.4% per month). What annualized rate of interest makes the net payoff zero? (Assume monthly compounding.)

Accepted Answer

A)   4.8%
B)   8.5%
C)   11.2%
D)   13.2%

Question 15

Which of the following phrases is used to describe an option where immediate exercise results in a positive payoff?

Accepted Answer

A)   At-the-money
B)   In-the-money
C)   Near-the-money
D)   Out-of-the-money

Question 16

What term may be used to describe a long call position in which the exercise price is below the asset price?

Accepted Answer

A)   At-the-money
B)   In-the-money
C)   Near-the-money
D)   Out-of-the-money

Question 17

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month). The premium on the long put, with an exercise price of $930, is $8.00. At what index price does a long put investor have the same payoff as a short index investor? Assume the short position has a breakeven price of $930.

Accepted Answer

A)   $921.90
B)   $930.00
C)   $938.10
D)   $940.00

Question 18

What term may be used to describe a long put position in which the exercise price is below the asset price?

Accepted Answer

A)   At-the-money
B)   In-the-money
C)   Near-the-money
D)   Out-of-the-money

Question 19

As with Chrysler Corp. many years ago, the government occasionally guarantees loans. What option is the government granting and to whom in a loan guarantee?

Accepted Answer

The answer of As with Chrysler Corp. many years ago,...

Question 20

Which strike price is reflective of an out-of- the-money long call with an asset price of $34?

Accepted Answer

A)   $32
B)   $34
C)   $36
D)   $38

Exam 2: An Introduction to Forwards and Options

All of the positions listed will benefit from a price decline, except:

The premium on a long term call option on the market index with an exercise price of 950 is $12.00 when originally purchased. After 6 months the position is closed and the index spot price is 965. If interest rates are 0.5% per month, what is the Call Payoff?

The spot price of the market index is $900. After 3 months the market index is priced at $920. An investor has a long call option on the index at a strike price of $930. After 3 months what is the investorʹs profit or loss?

Which type of option is least likely to be exercised?

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month) . The premium on the long put, with an exercise price of $930, is $8.00. What is the profit or loss at expiration for the long put?

Develop the payoff table for the previous question, using at least five different possible index prices, in addition to the strike price and breakeven price.

An investor has a long call option on the market index at a strike price of $930. At expiration the index price is $920. Explain the profit and loss.

A put option if purchased and held for 1 year. The Exercise price on the underlying asset is $40. If the current price of the asset is $36.45 and the future value of the original option premium is (- $1.62 ) , what is the put profit, if any at the end of the year?

Which of the following phrases is used to describe an option where immediate exercise results in a negative payoff?

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. What is the profit or loss to a short position if the spot price of the market index rises to $920 by the expiration date?

The premium on a call option on the market index with an exercise price of 1050 is $9.30 when originally purchased. After 2 months the position is closed and the index spot price is 1072. If interest rates are 0.5% per month, what is the Call Profit?

The spot price of the market index is $900. A 3-month forward contract on this index is priced at $930. The annual rate of interest on treasuries is 4.8% (0.4% per month) . What annualized rate of interest makes the net payoff zero? (Assume monthly compounding.)

Which of the following phrases is used to describe an option where immediate exercise results in a positive payoff?

What term may be used to describe a long call position in which the exercise price is below the asset price?

What term may be used to describe a long put position in which the exercise price is below the asset price?

As with Chrysler Corp. many years ago, the government occasionally guarantees loans. What option is the government granting and to whom in a loan guarantee?

Which strike price is reflective of an out-of- the-money long call with an asset price of $34?