Question 1

What is the put option premium given the following information?

Accepted Answer

A)   $1.58
B)   $2.01
C)   $2.59
D)   $3.96
E)   $4.20F) B) and E)
G) A) and B)

Question 2

What is the put option premium given the following information?

Accepted Answer

A)   $3.62
B)   $4.23
C)   $4.47
D)   $4.89
E)   $5.01F) None of the above
G) A) and B)

Question 3

Which one of the following terms is used as a shortcut means of saying "time to maturity"?

Accepted Answer

A)   holder
B)   expiry
C)   timing
D)   elapsing
E)   datingF) B) and D)
G) A) and E)

Question 4

Which one of the following best describes the graphical relationship between stock prices and option prices?

Accepted Answer

A)   linearity
B)   concavity
C)   convexity
D)   hyperbolic
E)   exponentialF) A) and D)
G) A) and E)

Question 5

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio?
I.European style
II.American style
III.trade in whole or partial contracts
IV.cash settlement

Accepted Answer

A)   III only
B)   I and III only
C)   I and IV only
D)   II and III only
E)   II and IV onlyF) A) and D)
G) C) and D)

Question 6

You own 5,000 shares of Miller stock which is currently valued at $37 a share.The $40 put has a premium of $2.30 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A)   buy 200 contracts
B)   buy 1,200 contracts
C)   buy 20,000 contracts
D)   write 200 contracts
E)   write 1,200 contractsF) A) and B)
G) B) and E)

Question 7

What is the call option premium given the following information?

Accepted Answer

A)   $5.91
B)   $6.28
C)   $6.75
D)   $6.90
E)   $7.13F) A) and B)
G) C) and D)

Question 8

An increase in which two of the following will have a negative effect on the value of a put option?
I.risk-free interest rate
II.time to option maturity
III.underlying stock price
IV.option strike price

Accepted Answer

A)   I and II only
B)   I and III only
C)   II and III only
D)   II and IV only
E)   III and IV onlyF) All of the above
G) D) and E)

Question 9

Which one of the following is another term for implied volatility?

Accepted Answer

A)   implied delta
B)   implied standard deviation
C)   implied alpha
D)   implied beta
E)   implied gammaF) A) and E)
G) A) and D)

Question 10

What is the call option premium given the following information?

Accepted Answer

A)   $3.86
B)   $4.04
C)   $4.16
D)   $4.38
E)   $4.50F) C) and D)
G) B) and C)

Question 11

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

Accepted Answer

A)   calculated alpha
B)   estimated variance
C)   implied theta
D)   VIX
E)   implied standard deviationF) A) and E)
G) None of the above

Question 12

A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is 0.86.What is the approximate call price if the stock increases in value to $45?

Accepted Answer

A)   $0.12
B)   $0.26
C)   $0.96
D)   $1.98
E)   $2.08F) C) and D)
G) A) and D)

Question 13

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Accepted Answer

A)   $0.61
B)   $0.72
C)   $0.93
D)   $1.11
E)   $1.36F) A) and B)
G) C) and E)

Question 14

A stock is currently priced at $35 a share while the $40 put option is priced at $5.22.The put option delta is -0.14.What is the approximate put price if the stock increases in value to $38?

Accepted Answer

A)   $3.76
B)   $4.47
C)   $5.08
D)   $5.27
E)   $5.50F) C) and E)
G) All of the above

Question 15

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -0.154.What is the call delta given these same variables?

Accepted Answer

A)   -1.154
B)   -0.846
C)   0.846
D)   1.154
E)   The answer cannot be determined based on the information provided.F) D) and E)
G) B) and D)

Question 16

An employee stock option is which one of the following?

Accepted Answer

A)   call option
B)   covered call
C)   put option
D)   protective put
E)   index optionF) A) and E)
G) B) and D)

Question 17

A stock with a current price of $37 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 4 percent.What is the current value of a call option with a strike price of $40?

Accepted Answer

A)   $4.16
B)   $4.42
C)   $4.71
D)   $5.09
E)   $5.13F) B) and E)
G) A) and B)

Question 18

Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

Accepted Answer

A)   stock price volatility
B)   time to option maturity
C)   risk-free interest rate
D)   underlying stock price
E)   dividend yieldF) B) and C)
G) C) and D)

Question 19

Which one of the following inputs for the Black-Scholes model is NOT directly observable?

Accepted Answer

A)   time to option maturity
B)   risk-free interest rate
C)   stock price
D)   strike price
E)   stock price volatilityF) A) and E)
G) B) and C)

Question 20

Employee stock options grant an employee which one of the following rights?

Accepted Answer

A)   right to sell shares in an S&P 500 index fund
B)   right to buy shares in an S&P 500 index fund
C)   right to sell shares of the employer's stock
D)   right to buy shares of the employer's stock
E)   right to buy shares in the employer's retirement planF) None of the above
G) C) and D)

Exam 16: Option Valuation

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

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Employee stock options grant an employee which one of the following rights?

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Which one of the following best describes the graphical relationship between stock prices and option prices?

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Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -0.154.What is the call delta given these same variables?

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A stock with a current price of $37 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 4 percent.What is the current value of a call option with a strike price of $40?

Correct AnswerverifiedShow Answer

Which one of the following terms is used as a shortcut means of saying "time to maturity"?

Correct AnswerverifiedShow Answer

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Correct AnswerverifiedShow Answer

Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

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What is the call option premium given the following information?

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Which one of the following is another term for implied volatility?

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Which one of the following inputs for the Black-Scholes model is NOT directly observable?

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What is the put option premium given the following information?

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An increase in which two of the following will have a negative effect on the value of a put option? I.risk-free interest rate II.time to option maturity III.underlying stock price IV.option strike price

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A stock is currently priced at $35 a share while the $40 put option is priced at $5.22.The put option delta is -0.14.What is the approximate put price if the stock increases in value to $38?

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You own 5,000 shares of Miller stock which is currently valued at $37 a share.The $40 put has a premium of $2.30 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

Correct AnswerverifiedShow Answer

An employee stock option is which one of the following?

Correct AnswerverifiedShow Answer

What is the call option premium given the following information?

Correct AnswerverifiedShow Answer

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio? I.European style II.American style III.trade in whole or partial contracts IV.cash settlement

Correct AnswerverifiedShow Answer

A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is 0.86.What is the approximate call price if the stock increases in value to $45?

Correct AnswerverifiedShow Answer

What is the put option premium given the following information?

Correct AnswerverifiedShow Answer

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