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Multiple Choice Quiz
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1
Which of the following is/are call options?
A)The abandonment option on an investment project
B)Stand-by underwriting
C)A and B
D)The company's option to redeem its bonds at a premium before maturity
2
Which of the following investors would be happy to see the stock price rise sharply?
A)An investor who owns a call option
B)An investor who owns a put option
C)An investor who owns the stock and has sold a call option
D)An investor who has sold a call option
3
Suppose an investor sells a put option. What will happen if the stock price on the exercise date exceeds the exercise price?
A)The seller will need to deliver stock to the owner of the option
B)The seller will be obliged to buy stock from the owner of the option
C)The owner will not exercise his option
D)None of the above
4
Suppose an investor buys one share of stock and a put option on the stock. What will be the value of the investment on the final exercise date if the stock price is below the exercise price?
A)The value of two shares of stock
B)The value of one share of stock plus the exercise price
C)The exercise price
D)The value of one share of stock minus the exercise price
5
A put option gives the owner the right
A)And the obligation to buy an asset at a given price
B)And the obligation to sell an asset at a given price
C)But not the obligation to buy an asset at a given price
D)But not the obligation to sell an asset at a given price
6
The buyer of a call option has the choice to exercise, but the writer of the call option has:
A)The choice to offset with a put option
B)The obligation to deliver the shares at exercise
C)The choice to deliver shares or take a cash payoff
D)The choice of exercising the call or not
7
Suppose an investor buys one share of stock and a put option on the stock and simultaneously sells a call option on the stock with the same exercise price. What will be the value of his investment on the final exercise date?
A)Above the exercise price if the stock price rises and below the exercise price if it falls
B)Equal to the exercise price regardless of the stock price
C)Equal to zero regardless of the stock price
D)Below the exercise price if the stock price rises and above if it falls
8
A call option that can be exercised only on one particular day is called
A)A European call
B)An American call
C)A short call
D)None of the above
9
The higher the exercise price:
A)The higher the call price
B)The lower the call price
C)Has no effect on call price
D)The higher the stock price
10
Which of the following features increase(s) the value of a call option?
A)A high interest rate
B)A long time to maturity
C)A highly variable stock price
D)All of the above
11
If the volatility of the underlying asset decreases, then the:
A)Value of the put option will increase, but the value of the call option will decrease
B)Value of the put option will decrease, but the value of the call option will increase
C)Value of both the put and call option will increase
D)Value of both the put and call option will decrease
12
Which of the following statements is true?
A)For both calls and puts an increase in the exercise price will cause an increase in the option price
B)For both calls and puts an increase in the time to maturity will cause an increase in the option price
C)For calls, but not for puts, an increase in the time to maturity will cause an increase in the option price
D)For puts, but not for calls, an increase in the time to maturity will cause an increase in the option price
13
Suppose an investor buys a call option with an exercise price of $25. If the stock is trading at $30, the
A)At-the-money
B)In-the-money
C)Out-of-the-money
D)Near-the-money
14
The price of an option increases with an increase in all of the following except:
A)Stock Price
B)Interest Rate
C)Time to expiration
D)Exercise Price
15
Put-call parity implies:
A)Value of call = Value of put
B)Value of call + Share price = Value of put + PV of exercise price
C)Value of call + PV of exercise = Value of put + share price
D)Value of call − PV of exercise = Value of put − share price





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