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标题: Derivatives【Reading 63】Sample [打印本页]
作者: burning0spear    时间: 2012-3-31 17:25     标题: [2012 L1] Derivatives【Session 17 - Reading 63】Sample

Regarding buyers and sellers of put and call options, which of the following statements concerning the resulting option position is most accurate? The buyer of a:
A)
call option is taking a long position and the buyer of a put option is taking a short position.
B)
put option is taking a short position and the seller of a call option is taking a short position.
C)
call option is taking a long position while the seller of a put is taking a short position.


The buyers of both puts and calls are taking long positions in the options contracts (but the buyer of a put is establishing a potentially short exposure to the underlying), while writers (sellers) of each are taking short positions in the options contracts.
作者: burning0spear    时间: 2012-3-31 17:26

Which of the following statements about put and call options at expiration is least accurate?
PutCall
A)
The maximum gain to the buyer is unlimited.The maximum loss to the writer is the premium.
B)
The maximum loss to a writer is their cost on the stock less the premiumThe maximum gain to the buyer is unlimited.
C)
The maximum gain to the buyer is limited to the stock price less the premium price.The maximum gain to the buyer is unlimited.


The maximum gain to the buyer of a put is limited to the value of the stock less the premium.
The maximum loss to the writer of a call is unlimited.
作者: Gypsy    时间: 2012-4-1 09:54

Which of the following represents a long position in an option?
A)
Writing a call option.
B)
Buying a put option.
C)
Writing a put option.


A long position is always the buying position. Remember that the buyer of an option is said to have gone long the position, while the writer (seller) of the option is said to have gone short the position.
作者: Gypsy    时间: 2012-4-1 09:54

Which of the following statements about options is most accurate?
A)
For call options, the lower the strike price relative to the stock's underlying price, the more the call option is worth.
B)
Most options throughout the world are European options.
C)
A put writer who deposits shares of the underlying stock has written a covered put.


The other statements are false. Most options throughout the world are American options. A call writer who deposits shares of the underlying stock has written a covered call.
作者: Gypsy    时间: 2012-4-1 09:54

A European option can be exercised by:
A)
its owner, only at the expiration of the contract.
B)
its owner, anytime during the term of the contract.
C)
either party, at contract expiration.


A European option can be exercised by its owner only at contract expiration.
作者: Gypsy    时间: 2012-4-1 09:55

Which of the following statements concerning an American-style option is least accurate?
A)
It allows the holder the right to exercise before maturity of the option.
B)
The predominant option type is American-style, rather than European-style.
C)
They are only traded in the U.S.


American-style options are traded throughout the world. The “American” label simply identifies the option as having the right to be exercised before maturity. American-style options are the predominant type of options contract traded.
作者: Gypsy    时间: 2012-4-1 09:55

What is the primary difference between an American and a European option?
A)
The American option can be exercised at anytime on or before its expiration date.
B)
American and European options are never written on the same underlying asset.
C)
The European option can only be traded on overseas markets.


American and European options are virtually identical, except exercising the European option is limited to its expiration date only. The American option can be exercised at anytime on or before its expiration date. For the exam, the key concept relating to this difference is the value of the American option must be equal or greater than the value of the corresponding European option, all else being equal.
作者: Gypsy    时间: 2012-4-1 09:55

Which of the following statements about European and American options is least accurate?
A)
European options offer more flexible trading opportunities for speculators.
B)
American options are far more common than European options.
C)
European options are easier to analyze and value than American options.


European options are less flexible for traders than American options because of the limitation on when they can be exercised, which is only on the expiration date. Traders gain more flexibility with American options that can be exercised at anytime on or before expiration.
作者: Gypsy    时间: 2012-4-1 09:56

An investor would exercise a put option when the:
A)
price of the stock is equal to the strike price.
B)
price of the stock is above the strike price.
C)
price of the stock is below the strike price.


A put option gives its owner the right to sell the underlying good at a specified price (strike price) for a specified time period. When the stock's price is less than the strike price a put option has value and is said to be in-the-money.
作者: Gypsy    时间: 2012-4-1 09:56

Basil, Inc., common stock has a market value of $47.50. A put available on Basil stock has a strike price of $55.00 and is selling for an option premium of $10.00. The put is:
A)
out-of-the-money by $2.50.
B)
in-the-money by $7.50.
C)
in-the-money by $10.00.


The put allows a trader to sell Basil common stock for $7.50 more than the current market value ($55.00 − $47.50). The trade is normally closed out with a cash settlement, but the trader could buy 100 shares for $47.50 per share and immediately sell them to the option writer for $55.00.
作者: Gypsy    时间: 2012-4-1 09:56

An out-of-the-money put and an in-the-money call are defined as:
PutCall
A)
strike price > market pricemarket price > strike price
B)
market price > strike price   strike price > market price
C)
market price > strike price   market price > strike price


In-the-money put: strike > market; out-of-the-money put: market > strike.
In-the-money call: market > strike; out of the money call: strike > market.
作者: Gypsy    时间: 2012-4-1 09:57

A put option is “in-the-money” when:
A)
there is no put option with a lower exercise price in the expiration series.
B)
the stock price is lower than the exercise price of the option.
C)
the stock price is higher than the exercise price of the option.


The put option is in-the-money if the stock price is below the exercise price.
作者: Gypsy    时间: 2012-4-1 09:57

Which of the following statements about moneyness is most accurate? When the stock price is:
A)
above the strike price, a put option is in-the-money.
B)
below the strike price, a call option is in-the-money.
C)
above the strike price, a put option is out-of-the-money.


When the stock price is above the strike price, a put option is out-of-the-money.
When the stock price is below the strike price, a call option is out-of-the-money.
作者: Gypsy    时间: 2012-4-1 09:57

A put option currently has an option premium of $3 and a strike price of $40. The market price of the stock is $42 at expiration. The expiration day value of the option is:
A)
$0.
B)
$2.
C)
$5.


The expiration day value of the put is $0 because it is trading out-of the money.
作者: Gypsy    时间: 2012-4-1 09:59

Which of the following statements about uncovered call options is least accurate?
A)
The loss potential to the writer is unlimited.
B)
The most the writer can make is the premium plus the difference between the exercise price (X) and the stock price (S).
C)
The profit potential to the holder is unlimited.


The most the writer can make is the premium. If the writer wrote a covered out of the money call, then the writer would make the premium plus the increase in the stock's price X-S.
作者: Gypsy    时间: 2012-4-1 09:59

A call option that is in the money:
A)
has an exercise price greater than the market price of the asset.
B)
has an exercise price less than the market price of the asset.
C)
has a value greater than its purchase price.


A call option is in the money when the exercise price is less than the market price of the asset.
作者: Gypsy    时间: 2012-4-1 10:01

James Anthony has a short position in a put option with a strike price of $94. If the stock price is below $94 at expiration, what will happen to Anthony’s short position in the option?
A)
The person who is long the put option will not exercise the put option.
B)
He will let the option expire.
C)
He will have the option exercised against him at $94 by the person who is long the put option.


Anthony has sold the right to sell the stock at $94. That is, he received a payment upfront for the payer to have the right but not the obligation to sell the stock at $94. Because the option is in-the-money at expiration, MAX (0, X-S), the holder will exercise his right to sell at $94.
作者: Gypsy    时间: 2012-4-1 10:01

Bidco Corporation common stock has a market value of $30.00. Which statement about put and call options available on Bidco common is most accurate?
A)
A call with a strike price of $25.00 is at-the-money.
B)
A put with a strike price of $35.00 is in-the-money.
C)
A put with a strike price of $20.00 has intrinsic value.


A put is in-the-money when its exercise price is higher than the market value of the underlying asset. A put with a $35.00 strike price allows the trader to sell 100 shares of stock for $35.00 per share, which is $5.00 higher than the prevailing market value. This gives the put a value, hence, it is in-the-money. For a call to be in-the-money, its strike price would have to be lower than the market value of the underlying common stock, allowing the trader to purchase 100 shares at a price below the prevailing market value. At-the-money is when the strike price and asset market value are equal. A put with a strike price of $20.00 does not have intrinsic value because it is below the $30 price of the stock. It does have time value meaning it is worth something because there is the possibility the put will come into the money before it expires.
作者: Gypsy    时间: 2012-4-1 10:01

Consider a put option on Deter, Inc., with an exercise price of $45. The current stock price of Deter is $52. What is the intrinsic value of the put option, and is the put option at-the-money or out-of-the-money?
Intrinsic ValueMoneyness
A)
$7   At-the-money
B)
$7   Out-of-the-money
C)
$0   Out-of-the-money


The option has an intrinsic value of $0, because the stock price is above the exercise price. Put value is MAX (0, X-S). Equivalently, the option is out-of-the-money.
作者: Gypsy    时间: 2012-4-1 10:02

Over-the-counter options are:
A)
very liquid.
B)
the most important type in terms of volume.
C)
largely unregulated.


Over-the-counter options are largely unregulated, not liquid, and represent much less volume than exchange-traded options.
作者: Gypsy    时间: 2012-4-1 10:05

Exchange-traded stock options are all of the following EXCEPT:
A)
backed by the options clearinghouse.
B)
typically for 100 shares of stock.
C)
subject to counterparty risk.


Exchange-traded options are backed by the clearinghouse and not subject to counterparty risk; over-the-counter options are subject to counterparty risk.
作者: Gypsy    时间: 2012-4-1 10:05

An option is settled in cash, with nothing delivered. The long payoff is the difference between the security value and the strike price, multiplied by a contract multiplier. The option is a(n):
A)
commodity option.
B)
index option.
C)
futures option.


Options on stock indexes are only settled in cash and require a multiplier to determine the payoff. Futures options give the holder the right to buy or sell a futures contract, but require no multiplier. Commodity options give the holder the right to buy or sell physical goods.
作者: Gypsy    时间: 2012-4-1 10:05

Which of the following statements regarding interest-rate options is least accurate?
A)
They are based on a fixed income security.
B)
Call option values move in the same direction as interest rates.
C)
They are based on a specific interest rate rather than a bond.


Treasury bond or bill options are options on fixed income securities. Interest rate options are based on a specific reference rate and interest rate calls have positive payoffs when the reference rate is above the rate specified in the contract.
作者: Gypsy    时间: 2012-4-1 10:06

An option to buy Mexican pesos is:
A)
a currency option.
B)
an exchange rate option.
C)
a foreign option.


Options on foreign currencies are called currency options and cover a specific number of foreign currency units.
作者: Gypsy    时间: 2012-4-1 10:06

Financial options include all of the following EXCEPT options on:
A)
interest rates.
B)
foreign currencies.
C)
futures.


Options on futures are considered a separate type of options.
作者: Gypsy    时间: 2012-4-1 10:06

A short position in a forward rate agreement is equivalent to:
A)
writing an interest rate put and buying an interest rate call.
B)
writing both an interest rate put and an interest rate call.
C)
writing an interest rate call and buying an interest rate put.


A short position in a forward rate agreement is an obligation to make a hypothetical loan at the contract rate and will be profitable when the forward rate falls. An equivalent position using interest rate options is to buy a put and write a call.
作者: Gypsy    时间: 2012-4-1 10:06

A long interest rate call and a short interest rate put is an equivalent position to:
A)
a pay-fixed interest rate swap.
B)
a long position in a forward rate agreement.
C)
a short position in a forward rate agreement.


A long call and short put on interest rates is equivalent to a long position in a forward rate agreement. Both gain when forward rates increase and decline in value when interest rates decrease.
作者: Gypsy    时间: 2012-4-1 10:07

Which combination of interest rate options most likely has the same pattern of payoffs as the short position in a forward rate agreement?
Interest rate call optionInterest rate put option
A)
ShortLong
B)
LongShort
C)
LongLong


A short position in an FRA will have a positive payoff when the reference rate is less than the contract rate, and a negative payoff when the reference rate is greater than the contract rate, at expiration. A short interest rate call will have a negative payoff when the reference rate is greater than the strike rate, and a long put will have a positive payoff when the reference rate is less than the strike rate.
作者: Gypsy    时间: 2012-4-1 10:07

A forward rate agreement is equivalent to:
A)
either an interest rate put or an interest rate call.
B)
a swap.
C)
a long interest rate call and a written interest rate put.


A long forward rate agreement is equivalent to a call (profits when interest rates go up) and a written put (losses when interest rates go down).
作者: Gypsy    时间: 2012-4-1 10:08

An issuer of floating rate debt can create an interest rate collar by buying:
A)
an interest rate floor and selling an interest rate cap.
B)
an interest rate cap and selling an interest rate floor.
C)
both an interest rate cap and an interest rate floor.


An interest rate collar combines a long interest rate cap with a short interest rate floor. Selling the floor offsets some of the cost of buying the cap.
作者: Gypsy    时间: 2012-4-1 10:09

The owner, of an interest-rate cap will:
A)
receive a payment if the market rate exceeds the cap rate.
B)
be required to make a payment if the market rate exceeds the cap rate.
C)
receive a payment if the market rate is less than the cap rate.


An interest-rate cap will pay its owner the maximum of zero or the market rate minus the cap rate, times the notional principal.
作者: Gypsy    时间: 2012-4-1 10:09

Buying an interest-rate cap and selling an interest-rate floor is equivalent to:
A)
buying a series of interest-rate puts and selling a series of interest rate calls.
B)
buying a series of interest-rate calls and selling a series of interest-rate puts.
C)
buying a series of interest-rate puts and calls.


A cap is equivalent to a series of (long) interest-rate calls and selling a floor is equivalent to selling a series of interest-rate puts.
作者: Gypsy    时间: 2012-4-1 10:15

An investor who bought a floating-rate security and wishes to establish a minimum periodic cash flow on his investment could:
A)
sell an interest-rate floor.
B)
buy an interest-rate floor.
C)
sell an interest-rate cap.


The buyer of a floor will receive a payment when the floating rate is below the floor rate, effectively establishing a minimum rate on the floating rate security.
作者: Gypsy    时间: 2012-4-1 10:16

The value of an interest-rate call option at expiration is zero or the:
A)
present value of, the market rate minus the exercise rate, adjusted for the period of the rate, times the principal amount.
B)
market rate minus the exercise rate, adjusted for the period of the rate, times the principal amount.
C)
exercise rate minus the market rate, adjusted for the period of the rate, times the principal amount.


An interest rate call pays zero or the market rate at expiration minus the exercise rate. Since the payment is made at a date after expiration by the period of the reference rate, the value at expiration is the present value of this difference times the principal value.
作者: Gypsy    时间: 2012-4-1 10:20

Which of the following descriptions of how option payoffs are determined is most accurate?
A)
The long position in an interest rate call option receives cash at expiration equal to Max[0, (reference rate-strike rate)] x notional principal amount.
B)
Payoffs on futures options can be determined without knowing the spot price of the underlying commodity.
C)
An equity call option holder receives cash in the amount by which the exercise price is greater than the strike price.


When the holder exercises a futures option, he receives an underlying futures position. The cash payoff is the value the holder gains when that position is marked to market. Thus, the payoff is the difference between the exercise price and the futures contract price. Although it certainly influences the futures price, the spot price of the underlying commodity does not enter into the calculation of the payoff on the option.
The long position in an interest rate call option receives cash if the reference rate is greater than the strike rate, but does not receive it at expiration. The term of the reference rate (for example, 90-day LIBOR) determines the length of time after expiration when the cash changes hands. Options that pay at expiration pay the present value of the amount described. Determining the payoff on a stock index option requires the index level, the exercise price, and the contract multiplier. The strike price is another name for the exercise price.
作者: Gypsy    时间: 2012-4-1 10:21

The payoff of a call option on a stock at expiration is equal to:
A)
the minimum of zero and the stock price minus the exercise price.
B)
the maximum of zero and the stock price minus the exercise price.
C)
the maximum of zero and the exercise price minus the stock price.


The payoff on a call option on a stock is Max (0, S – X).
作者: Gypsy    时间: 2012-4-1 10:22

When calculating the payoff for a stock option, if the stock price is greater than the strike price at expiration:
A)
a call option expires worthless.
B)
the payoff to a put option is equal to the strike price.
C)
the payoff to a call option is the difference between the stock price and the strike price.


If the stock price is greater than the strike price at expiration, the payoff to a call option on the stock equals the stock price minus the strike price, while a put option on the stock expires worthless.
作者: Gypsy    时间: 2012-4-1 10:22

Consider a long position in a LIBOR-based interest rate call option with a notional amount of $1,000,000 and a strike rate of 4%. If at expiration LIBOR is less than 4%, the call option buyer receives:
A)
$0.
B)
$1,000,000 × (4% – LIBOR).
C)
$1,000,000 × (LIBOR – 4%).


If LIBOR at expiration is less than the strike rate, the interest rate call option expires worthless.
作者: Gypsy    时间: 2012-4-1 10:22

An important difference between interest rate options and bond options is that:
A)
bond options must account for coupon payments.
B)
bond options have positive payoffs when rates increase, interest-rate options when rates decrease.
C)
the payoffs on interest-rate options are not made at option expiration.


The payoff on an interest-rate option is made after expiration by the period of the reference interest rate, e.g. 90-day LIBOR or 180-day LIBOR. Bond option values go down when interest rates increase; interest rate option values go up when the underlying rate increases.
作者: Gypsy    时间: 2012-4-1 10:26

An option’s intrinsic value is equal to the amount the option is:
A)
in the money, and the time value is the intrinsic value minus the market value.
B)
out of the money, and the time value is the market value minus the intrinsic value.
C)
in the money, and the time value is the market value minus the intrinsic value.


Intrinsic value is the amount the option is in the money. In effect it is the value that would be realized if the option were at expiration. Prior to expiration, the option’s market value will normally exceed its intrinsic value. The difference between market value and intrinsic value is called time value.
作者: Gypsy    时间: 2012-4-1 10:26

The price of a stock is $44 per share, and the October put with an exercise price of $45 is selling for $3. The intrinsic value of the option is:
A)
$1.00.
B)
$2.00.
C)
$0.00.


The intrinsic value of a put option at expiration will be the greater of (X-S) or 0. Put Value = max[0, (X-S)], or max [0, (45-44)] = 1.
作者: Gypsy    时间: 2012-4-1 10:44

Which of the following best describes the intrinsic value of an option? The intrinsic value is:
A)
highest if an option is at the money.
B)
its economic value if it is exercised at maturity.
C)
its economic value if it is exercised immediately.


The intrinsic value of an option is only positive if positive economic value results from exercising the option immediately.
作者: hinsafdar    时间: 2012-4-1 10:45

A call option’s intrinsic value:
A)
decreases as the stock price increases above the strike price, while a put option’s intrinsic value increases as the stock price decreases below the strike price.
B)
increases as the stock price increases above the strike price, while a put option’s intrinsic value increases as the stock price decreases below the strike price.
C)
increases as the stock price increases above the strike price, while a put option’s intrinsic value decreases as the stock price decreases below the strike price.


For a call option, as the underlying stock price increases above the strike price, the option moves farther into the money, and the intrinsic value is increasing. For a put option, as the underlying stock price decreases below the strike price, the option moves farther into the money, and the intrinsic value is increasing.
作者: hinsafdar    时间: 2012-4-1 10:45

The minimum value for a European call option is:
A)
max [0, S − X / (1 + R)T].
B)
max [0, (S – X) / (1 + R)T].
C)
min [0, S − X / (1 + R)T].


The minimum value of a European call option is max [0, S − X / (1 + R)T].
作者: hinsafdar    时间: 2012-4-1 10:46

Which of the following statements regarding an option prior to expiration is CORRECT? The maximum value of:
A)
a European put is equal to the maximum value of an American put.
B)
a European put is less than the maximum value of an American put.
C)
an American call is less than the maximum value of a European call.


The maximum value of a European put is X/(1+R)T and the maximum value of an American put is X.
作者: hinsafdar    时间: 2012-4-1 10:47

Which of the following statements regarding an option prior to expiration is most accurate? The maximum value of a(n):
A)
American call is equal to the maximum value of a European call.
B)
European call is greater than the maximum value of an American call.
C)
American put is equal to the maximum value of a European put.


The theoretical maximum value of both a European and American call is the price of the underlying stock. The theoretical maximum value of an American put is the exercise price, while the theoretical maximum value of a European put is the present value of the exercise price. Thus the maximum value is less for a European put than for an American put.
作者: hinsafdar    时间: 2012-4-1 10:47

ABEX Corporation common stock is selling for $50.00 per share. Both an American call option and a European call option are available on ABEX common, and each have identical strike prices and expiration dates. Which of the following statements concerning these two options is CORRECT?
A)
Because the American and European options have identical terms and are written against the same common stock, they will have identical option premiums.
B)
The European option will normally have a higher option premium because of their relative scarcity compared to American options.
C)
The greater flexibility allowed in exercising the American option will normally result in a higher market value relative to an otherwise identical European option.


Trading in European options is considerably less than trading in American options, because demand for them is much lower. This is due to their relative inflexibility regarding when they can be exercised. The greater exercising flexibility of American options gives them increased value to traders, which normally results in a greater market value relative to an otherwise identical European option.
作者: hinsafdar    时间: 2012-4-1 10:48

Compared to European put options on an asset with no cash flows, an American put option:
A)
will have the same minimum value.
B)
will have a higher minimum value.
C)
will have a lower minimum value.


Early exercise of an in-the-money American put option on an asset with no cash flows can generate more, X − S, than the minimum value of the European option, X / (1 + R)T − S. The possibility of profitable early exercise leads to a higher minimum value on the price of the American put option.
作者: hinsafdar    时间: 2012-4-1 10:48

A non-dividend-paying stock is trading at 62 when the risk-free rate is 5%. The minimum values for 6-month American and European calls on the stock with a strike price of 50 are closest to:
American call European call
A)
$13.20 $13.20
B)
$13.20 $11.75
C)
$11.75 $11.75


For both the American and European call, the minimum value is the greater of zero or [S − X / (1 + RFR)T-t] , where S = the price of the underlying stock, X = the exercise price of the option, RFR = the risk-free rate, and (T-t) = time to expiration in years.
62 − (50 / 1.050.5) = $13.21
作者: hinsafdar    时间: 2012-4-1 10:49

A put option with an exercise price of 59 on a non-dividend-paying stock expires in 3 months. The underlying stock is trading at 53 and the risk-free rate is 5%. The minimum value of an American-style put and of a European-style put are closest to:
American put European put
A)
$5.28 $6.00
B)
$6.00 $6.00
C)
$6.00 $5.28


The American put can be exercised immediately for a payoff of $6.00. The European put cannot be exercised until expiration, so its minimum value is 59 / (1.05)0.25 − 53 = $5.28. (Because the minimum value of an in-the-money European put is less than the minimum value of an otherwise identical American put, you can select the correct answer without performing this calculation.)
作者: hinsafdar    时间: 2012-4-1 10:49

Consider a call option expiring in 110 days on a non-dividend-paying stock trading at 27 when the risk-free rate is 6%. The lower bound for a call option with an exercise price of 25 is:
A)
$2.00.
B)
$1.97.
C)
$2.44.


27 - 25/(1.06)110/365 = 2.435.
作者: hinsafdar    时间: 2012-4-1 10:49

Consider a put option expiring in 120 days on a non-dividend-paying stock trading at 47 when the risk-free rate is 5%. What are the lower bounds for an American put and a European put with exercise prices of 50?
American PutEuropean Put
A)
$3.00$2.20
B)
$2.20$2.20
C)
$3.00$3.00


An American put can be exercised immediately for a $3 gain, the European put cannot be exercised until expiration so its minimum value is 50 / (1.05)120/365 − 47 = $2.20.
作者: hinsafdar    时间: 2012-4-1 10:51

Consider a call option expiring in 60 days on a non-dividend-paying stock trading at 53 when the risk-free rate is 5%. The lower bound for a call option with an exercise price of 50 is:
A)
$3.40.
B)
$0.
C)
$3.00.


53 − 50/(1.05)60/365 = 3.40.
作者: hinsafdar    时间: 2012-4-1 10:51

For a European call option X = 25 and a European call option X = 30 on the same stock with the same time to expiration it is true that, when the 30 call is at- or in-the-money, the strongest statement we can make is the:
A)
30 call is worth at least as much as the 25 call.
B)
value of the 25 call is greater than or equal to the value of the 30 call.
C)
value of the 25 call is greater than the value of the 30 call.


If the 30 call is at- or in-the-money at expiration, the strongest true statement is that the value of the 25 call is greater than the value of the 30 call. Even if the options are out of the money, the 25 call will be more valuable than the 30 call before expiration (although if they are far out of the money and close to expiration, both might have a value of effectively zero).
作者: hinsafdar    时间: 2012-4-1 10:52

For a European call option X=25 and a European call option X=30 on the same stock with the same time to expiration, the strongest statement we can make is the:
A)
25 call is worth at least as much as the 30 call.
B)
25 call is worth more than the 30 call.
C)
30 call is worth at least as much as the 25 call.


The strongest statement that we can make is that the 25 call is worth as least as much as the 30 call, although it will generally be worth more.
作者: hinsafdar    时间: 2012-4-1 10:52

For two European call options that differ only in time to expiration, the strongest statement we can make is that:
A)
the longer-term option must be worth at least as much as the shorter-term option.
B)
no relation can be established between the values of the two calls prior to expiration of the first.
C)
the longer-term option must be worth more than the shorter-term option.


While longer-term options generally are worth more, for far in- or out-of-the-money options, the values could be equal.
作者: hinsafdar    时间: 2012-4-1 10:52

For two European put options that differ only in their time to expiration, which of the following is most accurate? The longer-term option:
A)
can be worth more than the shorter-term option.
B)
can be worth less than the shorter-term option.
C)
can be worth at least as much as the shorter-term option.


For European puts, it is possible that the longer term option can be less valuable than a shorter-term option.
作者: hinsafdar    时间: 2012-4-1 10:53

For two American options that differ only in time to expiration, strongest statement we can make is that:
A)
the longer-term option must be worth less than the shorter-term option.
B)
the longer-term option must be worth at least as much as the shorter-term option.
C)
the longer-term option must be worth more than the shorter-term option.


While longer term options generally are worth more, for far in- or out-of-the-money options, the values could be equal.
作者: hinsafdar    时间: 2012-4-1 10:53

Consider the following four options on the same underlying instrument:
Option 1: September call, exercise price = $55.
Option 2: September call, exercise price = $60.
Option 3: December put, exercise price = $75.
Option 4: December put, exercise price = $80.


What is most likely the relationship among the values of these options?
September callsDecember puts
A)
Option 2 > Option 1Option 3 > Option 4
B)
Option 1 > Option 2Option 4 > Option 3
C)
Option 1 > Option 2Option 3 > Option 4


For options that differ only by exercise price, a call with a lower exercise price typically has more value than a call with a higher exercise price because the underlying instrument can be purchased at a lower price. A put with a higher exercise price typically has more value than a put with a lower exercise price because the underlying instrument can be sold for a higher price.
作者: hinsafdar    时间: 2012-4-1 10:54

Which of the following statements about options is least accurate?
A)
If an American option is exercised at expiration, its value will be less than that of a European option.
B)
Option prices are generally higher the longer the time until the option expires.
C)
For put options, the higher the strike price relative to the stock's underlying price, the more the put is worth.


The American option cannot be worth less than the European option.
作者: hinsafdar    时间: 2012-4-1 10:54

Which of the following statements about long positions in put and call options is most accurate? Profits from a long call:
A)
are positively correlated with the stock price and the profits from a long put are negatively correlated with the stock price.
B)
are negatively correlated with the stock price and the profits from a long put are positively correlated with the stock price.
C)
and a long put are positively correlated with the stock price.


For a call, the buyer's (or the long position's) potential gain is unlimited. The call option is in-the-money when the stock price (S) exceeds the strike price (X). Thus, the buyer's profits are positively correlated with the stock price. For a put, the buyer's (or the long position's) potential gain is equal to the strike price less the premium. A put option is in-the-money when X > S. Thus, a put buyer wants a high exercise price and a low stock price. Thus, the buyer's profits are negatively correlated with the stock price.
作者: hinsafdar    时间: 2012-4-1 10:54

Which statement best reflects the risk exposure of a put writer?
A)
Limited risk.
B)
No risk.
C)
Unlimited risk.


Because stock prices cannot fall below $0, a put writer’s risk is limited to the strike price.
作者: hinsafdar    时间: 2012-4-1 10:55

Which statement best reflects the risk exposure of an option buyer?
A)
Unlimited risk.
B)
Limited risk.
C)
No risk.


The most any option buyer can lose is the amount paid for the option.
作者: hinsafdar    时间: 2012-4-1 10:55

Using put-call parity, it can be shown that a synthetic European call can be created by a portfolio that is:
A)
long the stock, long the put, and short a pure discount bond that pays the exercise price at option expiration.
B)
long the stock, long the put, and long a pure discount bond that pays the exercise price at option expiration.
C)
long the stock, short the put, and short a pure discount bond that pays the exercise price at option expiration.


A stock and a put combined with borrowing the present value of the exercise price will replicate the payoffs on a call at option expiration.
作者: hinsafdar    时间: 2012-4-1 10:56

A fiduciary call is a portfolio that is made up of:
A)
a call that is synthetically created from other instruments.
B)
a call option and a bond that pays the exercise price of the call at option expiration.
C)
a call option and a share of stock.



A fiduciary call combines a call option and a bond that pays the exercise price of the call at option expiration.
作者: hinsafdar    时间: 2012-4-1 10:57

Assume that the value of a put option with a strike price of $100 and six months remaining to maturity is $5. For a stock price of $110 and an interest rate of 6%, what value is closest to the corresponding call option with the same strike price and same expiration as the put option?
A)
$11.99.
B)
$17.87.
C)
$12.74.


Call value = $110 + $5 – $100 / 1.060.5 = $17.87.
作者: hinsafdar    时间: 2012-4-1 10:58

The put-call parity relation can be adjusted for dividend payments on a stock by which of the following methods?
A)
Add the present value of the expected dividend payments to the exercise price.
B)
Add the present value of the expected dividend payments to the current stock price.
C)
Subtract the present value of the expected dividend payments from the current stock price.


The correct adjustment is to subtract the present value of the expected dividend payments from the current stock price.
作者: hinsafdar    时间: 2012-4-1 10:58

The lower bound on European call option prices can be adjusted for cash flows of the underlying asset by:
A)
subtracting the present value of the expected dividend payments from the current asset price.
B)
adding the present value of the expected dividend payments to the current asset price.
C)
subtracting the present value of the expected dividend payments from the exercise price.


The correct adjustment is to subtract the present value of the expected dividend payments from the current asset price.
作者: hinsafdar    时间: 2012-4-1 11:01

An increase in the riskless rate of interest, other things equal, will:
A)
increase call option values and decrease put option values.
B)
decrease call option values and increase put option values.
C)
decrease call option values and decrease put option values.


An increase in the risk-free rate of interest will increase call option values and decrease put option values.
作者: hinsafdar    时间: 2012-4-1 11:02

For stock options, which of the following will least likely increase put option values and decrease call option values?
A)
An increase in the riskless rate of interest.
B)
A decrease in the riskless rate of interest.
C)
An increase in the exercise price.


An increase in the riskless rate of interest will decrease put option values and increase call option values.
作者: hinsafdar    时间: 2012-4-1 11:03

Greater volatility in the price of the underlying asset will have what effect on the value of a call option and the value of a put option?
Value of a call option Value of a put option
A)
Increase Decrease
B)
Decrease Increase
C)
Increase Increase



Greater volatility in the price of the underlying asset increases the values of both puts and calls because options are “one-sided.” Since an option’s value can fall no lower than zero (it expires out of the money), increased volatility increases an option’s upside potential but does not increase its downside exposure.



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