Question 1

The buyer of a call option wants the price of the stock to rise.

Accepted Answer

A) True 
 B)False  True

Question 2

If an investor anticipates that interest rates will increase, that individual should sell an option to buy Treasury bonds

Accepted Answer

A) True 
 B)False  True

Question 3

The most the individual who buys a put option can lose
is the cost of the option.

Accepted Answer

A) True 
 B)False  True

Question 4

As the price of a stock rises, the time premium paid for an option to buy stock increases.

Accepted Answer

A) True 
 B)False

Question 5

A writer of a call option closes the position by

Accepted Answer

A)   purchasing the stock
B)   selling the stock
C)   purchasing the option
D)   selling the option

Question 6

A writer of a naked call option will lose money if the price of the stock declines.

Accepted Answer

A) True 
 B)False

Question 7

Given the following information,
  
a. The intrinsic value of the call is _________.
b. The intrinsic value of the put is _________.
c. The time premium paid for the call is _________.
d. The time premium paid for the put is _________.
At the expiration of the options (i.e., after six months have lapsed), the price of the stock is $45.
e. The profit (loss) from buying the call is _______.

Accepted Answer

The answer of Given the following information,
  
a. The...

Question 8

Holders of calls do not receive the cash dividends
paid to the company's stockholders.

Accepted Answer

A) True 
 B)False

Question 9

If the price of a stock rises substantially, the investor who wrote a covered call
1) earns a modest profit
2) sustains a modest loss
3) lost an opportunity for a large profit

Accepted Answer

A)   1 and 2
B)   1 and 3
C)   2 and 3
D)   only 3

Question 10

The CBOE is
1) a secondary market in put and call options
2) a division of the SEC that regulated option trading
3) the first organized options exchange

Accepted Answer

A)   1 and 2
B)   1 and 3
C)   2 and 3
D)   all of the above

Question 11

A put is the option to sell stock at $35. The price of the stock is $34, and the price of the put is $2.
a. What is the intrinsic value of the put?
b. What is the time premium paid for the put?
c. What is the percentage return from purchasing the put if at the expiration of the put the price of the stock is $31?

Accepted Answer

The answer of A put is the option to sell...

Question 12

What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55?

Accepted Answer

The answer of What are the following call options' intrinsic...

Question 13

A put is an option to

Accepted Answer

A)   buy stock
B)   receive stock
C)   sell stock
D)   receive dividends

Question 14

You obtain the following information concerning a stock, a call option, and a put option
  
You want to purchase the stock but also want to use an option to reduce your risk of loss. 
a. Do you purchase the put or the call or do you sell the put or the call?
b. What is the cash inflow or outflow from your position?
c. What is profit or loss if the price of the stock stagnates and trades for $42 after three months?
d. What is profit or loss if the price of the stock trades for $50 or $100 after three months?
e. What is profit or loss if the price of the stock trades for $30 after three months?

Accepted Answer

The answer of You obtain the following information concerning a...

Question 15

The CBOE is a secondary market for put and call options.

Accepted Answer

A) True 
 B)False

Question 16

The price of a call depends on
1) the strike price
2) the price of the underlying stock
3) the term (i.e., life) of the call

Accepted Answer

A)   1 and 2
B)   1 and 3
C)   2 and 3
D)   all of the above

Question 17

If an investor is bearish, he or she should not buy
a stock index call option.

Accepted Answer

A) True 
 B)False

Question 18

Options sell for a time premium over their intrinsic
Value because

Accepted Answer

A)   they earn dividends
B)   they are debt obligations
C)   they offer potential leverage
D)   they are long-term investments

Question 19

An option's intrinsic value exceeds the option's price.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is premised on lower stock prices?

Accepted Answer

A)   buying a stock index call
B)   buying a stock index put
C)   buying a stock and selling a call
D)   buying a stock and selling a put

Exam 17: An Introduction to Options

The buyer of a call option wants the price of the stock to rise.

If an investor anticipates that interest rates will increase, that individual should sell an option to buy Treasury bonds

The most the individual who buys a put option can lose is the cost of the option.

As the price of a stock rises, the time premium paid for an option to buy stock increases.

A writer of a call option closes the position by

A writer of a naked call option will lose money if the price of the stock declines.

Holders of calls do not receive the cash dividends paid to the company's stockholders.

If the price of a stock rises substantially, the investor who wrote a covered call 1) earns a modest profit 2) sustains a modest loss 3) lost an opportunity for a large profit

The CBOE is 1) a secondary market in put and call options 2) a division of the SEC that regulated option trading 3) the first organized options exchange

What are the following call options' intrinsic values and time premiums if the price of the underlying stock is $55?

A put is an option to

The CBOE is a secondary market for put and call options.

The price of a call depends on 1) the strike price 2) the price of the underlying stock 3) the term (i.e., life) of the call

If an investor is bearish, he or she should not buy a stock index call option.

Options sell for a time premium over their intrinsic Value because

An option's intrinsic value exceeds the option's price.

Which of the following is premised on lower stock prices?