Reading 70: Option Markets and Contracts- LOSg～ Q1-5 option, minimum, regarding, following, statements

yanghon

 

LOS g: Determine the minimum and maximum values of European options and American options.

Q1. Which of the following statements regarding an option prior to expiration is TRUE? The maximum value of:

A)   a European put is equal to the maximum value of an American put.

B)   an American call is less than the maximum value of a European call.

C)   a European put is less than the maximum value of an American put.

 

Q2. The following value diagram illustrates a:

A)   long put option.

B)   long call option.

C)   short put option.

 

The maximum that the call buyer can lose is the amount of the premium, while the profit potential for the call buyer is unlimited.

Q3. The following value diagram illustrates a:

A)   short put option.

B)   long put option.

C)   short call option.

 

Q4. Which of the following statements about puts is FALSE? The most the:

A)   writer can gain is the put premium.

B)   writer can lose is the strike price less the premium.

C)   buyer can gain is unlimited.

 

Q5. The minimum value for a European call option is:

A)   max [0, (S – X) / (1 + R)^T].

B)   min [0, S ? X / (1 + R)^T].

C)   max [0, S ? X / (1 + R)^T].

 

yanghon

LOS g: Determine the minimum and maximum values of European options and American options. fficeffice" />

Q1. Which of the following statements regarding an option prior to expiration is TRUE? The maximum value of:

A)   a European put is equal to the maximum value of an American put.

B)   an American call is less than the maximum value of a European call.

C)   a European put is less than the maximum value of an American put.

Correct answer is C)       

The maximum value of a European put is X/(1+R)^T and the maximum value of an American put is X.

 

Q2. The following value diagram illustrates a:

A)   long put option.

B)   long call option.

C)   short put option.

 Correct answer is B)

This value diagram represents a long call position. The holder (buyer) of the option pays a premium to receive a payment if the stock price is higher than the exercise price. As the stock price rises above the exercise price, the option pays more to the buyer. The maximum that the call buyer can lose is the amount of the premium, while the profit potential for the call buyer is unlimited.

 

Q3. The following value diagram illustrates a:

A)   short put option.

B)   long put option.

C)   short call option.

Correct answer is C)

This value diagram represents a short call position. The seller (writer) of the option receives a premium. However, as the stock price rises further above the exercise price, the seller of the option loses more. Note that the greatest profit the call seller (writer) can receive is the amount of the premium, while the potential loss is unlimited.

 

Q4. Which of the following statements about puts is FALSE? The most the:

A)   writer can gain is the put premium.

B)   writer can lose is the strike price less the premium.

C)   buyer can gain is unlimited.

Correct answer is C)

The most the buyer can gain is the strike price of the stock less the premium.

 

Q5. The minimum value for a European call option is:

A)   max [0, (S – X) / (1 + R)^T].

B)   min [0, S ? X / (1 + R)^T].

C)   max [0, S ? X / (1 + R)^T].

Correct answer is C)

The minimum value of a European call option is max [0, S ? X / (1 + R)^T].

[此贴子已经被作者于2009-3-2 10:48:33编辑过]

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