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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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