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| 1 | |
Jeanette just purchased a European call on 100 shares of Delta stock. The call has an exercise price of $30 and an expiration date of June 20. Delta stock is currently trading at $32 a share. Which one of the following statements is correct concerning this call? |
| | A) | Jeanette can buy 100 shares of Delta stock for $30 a share anytime between now and June 20. |
| | B) | Jeanette can sell 100 shares of Delta stock for $30 a share anytime between now and June 20. |
| | C) | Jeanette is obligated to buy 100 shares of Delta stock at $30 a share if the option is exercised. |
| | D) | Jeanette is obligated to sell 100 shares of Delta stock at $30 a share if the option is exercised. |
| | E) | Jeanette can purchase 100 shares of Delta stock for $30 a share only on June 20. |
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| 2 | |
JKL stock is selling for $43 a share. Which of the following statements are correct concerning an American call option on JKL stock which expires today?
I. If the exercise price of the option is $45, the call is in-the-money.
II. The calls with both $45 and $50 exercise prices have the same expiration value.
III. A call with a $40 exercise price is worth $3 if exercised today.
IV. The $30 call option is worth more than the $35 call option. |
| | A) | I and II only |
| | B) | II and III only |
| | C) | III and IV only |
| | D) | II, III, and IV only |
| | E) | I, II, III, and IV |
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| 3 | |
ZX stock is currently selling for $52 a share. The value of a 3-month American call option on ZX with an exercise price of $50 a share will: |
| | A) | increase by $1 if the stock price decreases by $1. |
| | B) | increase by $1 if the stock price increases by $3. |
| | C) | decrease by $1 if the stock price decreases by $1. |
| | D) | decrease by $5 if the stock price decreases by $5. |
| | E) | remain constant unless the stock price declines by more than $2. |
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| 4 | |
Marti owns a European call option on SK stock with an exercise price of $45. She believes that SK stock will either be worth $40 or $50 per share on the expiration date. If Marti is correct, her option will either be worth _____ or _____, respectively, per share of SK stock at expiration. |
| | A) | -$5; $0 |
| | B) | -$5; $5 |
| | C) | $0; $5 |
| | D) | $5; $0 |
| | E) | $5; -$5 |
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| 5 | |
The buyer of a(n) _____ has the right, but not the obligation, to buy an asset on a specified date for a specified price. |
| | A) | American put option |
| | B) | American call option |
| | C) | protective put |
| | D) | European put option |
| | E) | European call option |
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| 6 | |
The buyer of a(n) _____ has the right, but not the obligation, to sell an asset on or before a specified date for a specified price. |
| | A) | American put option |
| | B) | American call option |
| | C) | protective put |
| | D) | European put option |
| | E) | European call option |
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| 7 | |
CeeCi purchased shares of TK stock for $21 a share. TK stock is currently selling for $41 a share. CeeCi does not want to sell her shares of TK as she feels the stock will continue to increase in price until it reaches $50. However, CeeCi would like to protect the profits she currently has in the stock. CeeCi should: |
| | A) | buy a call option with an exercise price of $40. |
| | B) | sell a call option with an exercise price of $50. |
| | C) | buy a put option with an exercise price of $40. |
| | D) | sell a put option with an exercise price of $40. |
| | E) | buy a call and sell a put, both with exercise prices of $50. |
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| 8 | |
Rob owns a European put option on MO stock with an exercise price of $35. At expiration, this put will be worth _____ if MO is selling at $33 a share or _____ if MO is selling at $37 a share. |
| | A) | -$2; $0 |
| | B) | -$2; $2 |
| | C) | $0; $2 |
| | D) | $2; $0 |
| | E) | $2; $2 |
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| 9 | |
Tom writes an American put on GH stock at an exercise price of $25 and an expiration date of February 18. Today is January 30 and GH stock is selling for $22 a share. Which of the following statements must be correct?
I. Tom will have a payoff of $3 a share at expiration.
II. If Tom exercises his put today, he will earn $3 a share.
III. Tom must buy GH stock at $25 a share if the put is exercised.
IV. If GH stock is selling for $22 at expiration, the put will not be exercised. |
| | A) | III only |
| | B) | IV only |
| | C) | I and II only |
| | D) | I, II, and III only |
| | E) | I, II, and IV only |
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| 10 | |
WW stock is currently selling for $36 a share. Lester would like to own some WW stock but is unwilling to pay that much per share to do so. Lester should consider _____ with a strike price of ____ per share of stock. |
| | A) | buying a call; $40 |
| | B) | buying a put; $35 |
| | C) | buying a put; $40 |
| | D) | selling a put; $40 |
| | E) | selling a put; $35 |
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