The correct answer for each question is indicated by a .

1

Suppose Sarah's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50?

A)

0.375

B)

0.500

C)

0.600

D)

0.750

2

Suppose David's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $12? The six-month risk-free interest rate is 5% (periodic rate).

A)

$9.78

B)

$2.00

C)

$0.86

D)

$9.43

3

The Black-Scholes option pricing model is dependent on what five parameters?

A)

Stock price, exercise price, risk free rate, beta, and time to maturity

B)

Stock price, risk free rate, beta, time to maturity, and variance

C)

Stock price, risk free rate, probability, variance and exercise price

D)

Stock price, exercise price, risk free rate, variance and time to maturity

4

A call option is in the money when,

A)

Exercise price is greater than the stock price

B)

Exercise price is lower than the stock price

C)

Exercise price is equal to the stock price

D)

None of the above

5

Which of the following is not a method used to terminate an option position?

A)

Exercise

B)

Sell the option

C)

Let the option expire

D)

Purchase a stock

6

To approximate the Black Scholes price with the binomial method you must

A)

Create longer intervals

B)

Use shorter intervals

C)

Adjust for volatility

D)

Increase the discount rate

7

What feature of the option price prevents early exercise of American options in most circumstances?

A)

Interest rates

B)

Volatility

C)

Lack of liquid market

D)

Time premium

8

When is the option worth the most given the following days until expiration, all else being equal?

A)

10

B)

30

C)

60

D)

90

9

What is the value of a call option given the following variables? Stock price = $42, exercise price = $40, standard deviation = .32, risk free rate = .06, and 45 days until expiration.

A)

$3.20

B)

$3.01

C)

$2.56

D)

$2.33

10

What is the value of a call option given the following variables? Stock price = $60, exercise price = $65, standard deviation = .22, risk free rate = .03, and 90 days until expiration.

A)

$0.87

B)

$1.03

C)

$1.52

D)

$2.02

11

What is the value of a call option given the following variables? Stock price = $51, exercise price = $50, standard deviation = .18, risk free rate = .04, and 76 days until expiration.

A)

$0.87

B)

$1.95

C)

$2.45

D)

$3.36

12

If u equals the quantity (1+ upside change), then the quantity (1 + downside change) is equal to:

A)

−u

B)

−1/u

C)

1/u

D)

None of the above

13

If the value of d1 is 1.25, then the value of N(d1) is equal to:

A)

−0.1056

B)

1.25

C)

0.25

D)

0.844

14

The term [N(d2)*PV(EX)] in the Black-Scholes model represents:

A)

Option delta

B)

Bank loan

C)

Cumulative normal probability density function

D)

None of the above

15

What is the value of a put option given the following variables? Stock price = $42, exercise price = $40, standard deviation = .32, risk free rate = .06, and 45 days until expiration.

A)

$0.91

B)

$1.01

C)

$1.56

D)

$2.03

E-mail Your Results

Date:

My name:

Section ID:

E-mail these results to:

E-mail address:

Format:

Me:

My Instructor:

My TA:

Other:

To learn more about the book this website supports, please visit its Information Center.

You must be a registered user to view the premium content in this website.

If you already have a username and password, enter it below. If your textbook
came with a card and this is your first visit to this site, you can
use your registration code
to
register.