Question 1

A 35 put option on ABC expires today.The current price of ABC is €36.The put is:

Accepted Answer

A)  funded.
B)  unfunded.
C)  at the money.
D)  in the money.
E)  out of the money.F) C) and D)
G) A) and D)

Question 2

You own two call option contracts on ABC with a strike price of €15.When you purchased the shares the option price was €1.20 and the share price was €15.90.What is the total intrinsic value of
These options if ABC is currently selling for €14.50 a share?

Accepted Answer

A)  -€280
B)  -€180
C)  -€100
D)  €0
E)  €100F) B) and C)
G) A) and D)

Question 3

Tru-U is selling for €36 a share.A 3-month call on Tru-U with a strike price of €40 is priced at €1. Risk-free assets are currently returning 0.25% per month.What is the price of a 3-month put on Tru-
U with a strike price of €40?

Accepted Answer

A)  €2.98
B)  €3.00
C)  €4.03
D)  €4.70
E)  €4.90F) A) and B)
G) A) and E)

Question 4

Which of the following statements is true?

Accepted Answer

A)  American options are options on securities of U.S.corporations, and the options areTraded on American exchanges.European options are options on securities of U.S.Corporations, but the options are traded on European exchanges.
B)  American options are options on securities which are traded on American exchanges.European options, also traded on American exchanges, are options on EuropeanCorporations.
C)  American options give the holder the right to the dividend payment.European options doNot) 
D)  American options may be exercised anytime up to expiration.European options may beExercised only at expiration.
E)  None of the above.F) A) and B)
G) B) and D)

Question 5

Explain the rationale behind the statement that equity is a call option on the ﬁrm's assets.When would a shareholder allow the call to expire?

Accepted Answer

The analogy only works for leveraged ﬁrm...

Question 6

Tele-Tech Com announces a major expansion into Internet services.This announcement causes the price of Tele-Tech Com share to increase, but also causes an increase in price volatility of the share.
Which of the following correctly identiﬁes the impact of these changes on the put option of Tele-
Tech Com?

Accepted Answer

A)  Both changes cause the price of the put option to decrease.
B)  Both changes cause the price of the put option to increase.
C)  The greater uncertainty will cause the price of the put option to decrease.The higher priceOf the share will cause the price of the put option to increase.
D)  The greater uncertainty will cause the price of the put option to increase.The higher priceOf the share will cause the price of the put option to decrease.
E)  The greater uncertainty has no direct effect on the price of the put option.The higher priceOf the share will cause the price of the put option to decrease.F) A) and C)
G) A) and B)

Question 7

In the Black-Scholes option pricing formula, N(d1)  is the probability that a standardized, normally distributed random variable is:

Accepted Answer

A)  less than or equal to N(d2) .
B)  less than one.
C)  equal to one.
D)  equal to d1.
E)  less than or equal to d1.F) A) and E)
G) A) and B)

Question 8

If a call has a positive intrinsic value at expiration the call is said to be:

Accepted Answer

A)  funded.
B)  unfunded.
C)  at the money.
D)  in the money.
E)  out of the money.F) A) and E)
G) A) and D)

Question 9

The ﬁxed price in an option contract at which the owner can buy or sell the underlying asset is called the option's:

Accepted Answer

A)  opening price.
B)  intrinsic value.
C)  strike price.
D)  market price.
E)  time value.F) B) and D)
G) A) and C)

Question 10

The ordinary shares of Winssonis currently priced at €52.50 a share.One year from now, the share price is expected to be either €54 or €60 a share.The risk-free rate of return is 4%.What is the
Value of one call option on Winsson share with an exercise price of €55?

Accepted Answer

A)  €0.39
B)  €0.41
C)  €0.45
D)  €0.48
E)  €0.51F) A) and D)
G) A) and E)

Question 11

Jeff opted to exercise his August option on August 10 and received €2,500 in exchange for his shares.Jeff must have owned a (an) :

Accepted Answer

A)  warrant.
B)  American call.
C)  American put.
D)  European call.
E)  European put.F) C) and E)
G) A) and C)

Question 12

Three weeks ago, you purchased a July 45 put option on RPJ at an option price of €3.20.The market price of RPJ three weeks ago was €42.70.Today, RPJ is selling at €44.75 a share and the
July 45 put is priced at €.80.What is the intrinsic value of your put contract?

Accepted Answer

A)  -€295
B)  -€210
C)  €0
D)  €25
E)  €110F) B) and D)
G) A) and B)

Question 13

You sold ten put option contracts on PLT with an exercise price of €32.50 and an option price of €1.10.Today, the option expires and the underlying share is selling for €34.30 a share.Ignoring
Trading costs and taxes, what is your total proﬁt or loss onthis investment?

Accepted Answer

A)  -€2,900
B)  -€1,100
C)  €700
D)  €1,100
E)  €2,900F) C) and E)
G) A) and E)

Question 14

An in-the-money put option is one that:

Accepted Answer

A)  has an exercise price greater than the underlying share price.
B)  has an exercise price less than the underlying share price.
C)  has an exercise price equal to the underlying share price.
D)  should not be exercised at expiration.
E)  should not be exercised at any time.F) A) and B)
G) None of the above

Question 15

The effect on an option's value of a small change in the value of the underlying asset is called the option:

Accepted Answer

A)  theta.
B)  vega.
C)  rho.
D)  delta.
E)  gamma.F) B) and D)
G) C) and E)

Question 16

An out-of-the-money call option is one that:

Accepted Answer

A)  Has an exercise price below the current market price of the underlying security.
B)  Should not be exercised.
C)  Has an exercise price above the current market price of the underlying security.
D)  Both A and B.
E)  Both B and C.F) D) and E)
G) None of the above

Question 17

The relationship between the prices of the underlying share, a call option, a put option, and a riskless asset is referred to as the _____ relationship.

Accepted Answer

A)  put-call parity
B)  covered call
C)  protective put
D)  straddle
E)  strangleF) A) and B)
G) C) and D)

Question 18

The last day on which an owner of an option can elect to exercise is the _____ date.

Accepted Answer

A)  ex-payment
B)  ex-option
C)  opening
D)  expiration
E)  intrinsicF) D) and E)
G) All of the above

Question 19

Assume that you own both a May 40 put and a May 40 call on ABC .Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

Accepted Answer

A)  An increase in the share price will increase the value of your put and decrease the value ofYour call.
B)  Both a May 45 put and a May 45 call will have higher values than your May 40 options.
C)  The time premiums on both your put and call are less than the time premiums onEquivalent June options.
D)  A decrease in the share price will decrease the value of both of your options.
E)  You cannot proﬁt on your position as your proﬁts on one option will be offset by losses onThe other option.F) C) and D)
G) A) and D)

Question 20

You own one call option with an exercise price of €30 on Nadia Interiors.This is currently selling for €27.80 a share but is expected to increase to either €28 or €34 a share over the next year.The
Risk-free rate of return is 5% and the inﬂation rate is 3%.What is the current value of your option if it
Expires in one year?

Accepted Answer

A)  €0.76
B)  €0.79
C)  €0.89
D)  €0.92
E)  €0.95F) A) and B)
G) C) and D)

Exam 22: Options and Corporate Finance

Jeff opted to exercise his August option on August 10 and received €2,500 in exchange for his shares.Jeff must have owned a (an) :

Correct Answer
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You sold ten put option contracts on PLT with an exercise price of €32.50 and an option price of €1.10.Today, the option expires and the underlying share is selling for €34.30 a share.Ignoring Trading costs and taxes, what is your total proﬁt or loss onthis investment?

Correct Answer
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The effect on an option's value of a small change in the value of the underlying asset is called the option:

Correct Answer
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Tru-U is selling for €36 a share.A 3-month call on Tru-U with a strike price of €40 is priced at €1. Risk-free assets are currently returning 0.25% per month.What is the price of a 3-month put on Tru- U with a strike price of €40?

Correct Answer
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In the Black-Scholes option pricing formula, N(d1) is the probability that a standardized, normally distributed random variable is:

Correct Answer
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Three weeks ago, you purchased a July 45 put option on RPJ at an option price of €3.20.The market price of RPJ three weeks ago was €42.70.Today, RPJ is selling at €44.75 a share and the July 45 put is priced at €.80.What is the intrinsic value of your put contract?

Correct Answer
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An in-the-money put option is one that:

Correct Answer
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A 35 put option on ABC expires today.The current price of ABC is €36.The put is:

Correct Answer
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Which of the following statements is true?

Correct Answer
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The ordinary shares of Winssonis currently priced at €52.50 a share.One year from now, the share price is expected to be either €54 or €60 a share.The risk-free rate of return is 4%.What is the Value of one call option on Winsson share with an exercise price of €55?

Correct Answer
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An out-of-the-money call option is one that:

Correct Answer
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Explain the rationale behind the statement that equity is a call option on the ﬁrm's assets.When would a shareholder allow the call to expire?

Correct Answer
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The analogy only works for leveraged ﬁrm...
View Answer

The relationship between the prices of the underlying share, a call option, a put option, and a riskless asset is referred to as the _____ relationship.

Correct Answer
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The last day on which an owner of an option can elect to exercise is the _____ date.

Correct Answer
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Assume that you own both a May 40 put and a May 40 call on ABC .Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

Correct Answer
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The ﬁxed price in an option contract at which the owner can buy or sell the underlying asset is called the option's:

Correct Answer
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You own two call option contracts on ABC with a strike price of €15.When you purchased the shares the option price was €1.20 and the share price was €15.90.What is the total intrinsic value of These options if ABC is currently selling for €14.50 a share?

Correct Answer
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If a call has a positive intrinsic value at expiration the call is said to be:

Correct Answer
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Exam 22: Options and Corporate Finance

Jeff opted to exercise his August option on August 10 and received €2,500 in exchange for his shares.Jeff must have owned a (an) :

Correct AnswerverifiedShow Answer

You sold ten put option contracts on PLT with an exercise price of €32.50 and an option price of €1.10.Today, the option expires and the underlying share is selling for €34.30 a share.Ignoring Trading costs and taxes, what is your total proﬁt or loss onthis investment?

Correct AnswerverifiedShow Answer

The effect on an option's value of a small change in the value of the underlying asset is called the option:

Correct AnswerverifiedShow Answer

Tru-U is selling for €36 a share.A 3-month call on Tru-U with a strike price of €40 is priced at €1. Risk-free assets are currently returning 0.25% per month.What is the price of a 3-month put on Tru- U with a strike price of €40?

Correct AnswerverifiedShow Answer

In the Black-Scholes option pricing formula, N(d1) is the probability that a standardized, normally distributed random variable is:

Correct AnswerverifiedShow Answer

Three weeks ago, you purchased a July 45 put option on RPJ at an option price of €3.20.The market price of RPJ three weeks ago was €42.70.Today, RPJ is selling at €44.75 a share and the July 45 put is priced at €.80.What is the intrinsic value of your put contract?

Correct AnswerverifiedShow Answer

An in-the-money put option is one that:

Correct AnswerverifiedShow Answer

A 35 put option on ABC expires today.The current price of ABC is €36.The put is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The ordinary shares of Winssonis currently priced at €52.50 a share.One year from now, the share price is expected to be either €54 or €60 a share.The risk-free rate of return is 4%.What is the Value of one call option on Winsson share with an exercise price of €55?

Correct AnswerverifiedShow Answer

An out-of-the-money call option is one that:

Correct AnswerverifiedShow Answer

Explain the rationale behind the statement that equity is a call option on the ﬁrm's assets.When would a shareholder allow the call to expire?

Correct AnswerverifiedThe analogy only works for leveraged ﬁrm...View AnswerShow Answer

The relationship between the prices of the underlying share, a call option, a put option, and a riskless asset is referred to as the _____ relationship.

Correct AnswerverifiedShow Answer

The last day on which an owner of an option can elect to exercise is the _____ date.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that you own both a May 40 put and a May 40 call on ABC .Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

Correct AnswerverifiedShow Answer

The ﬁxed price in an option contract at which the owner can buy or sell the underlying asset is called the option's:

Correct AnswerverifiedShow Answer

You own two call option contracts on ABC with a strike price of €15.When you purchased the shares the option price was €1.20 and the share price was €15.90.What is the total intrinsic value of These options if ABC is currently selling for €14.50 a share?

Correct AnswerverifiedShow Answer

If a call has a positive intrinsic value at expiration the call is said to be:

Correct AnswerverifiedShow Answer

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The analogy only works for leveraged ﬁrm...
View Answer

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