投资学题库20

投资学题库20

-CAL-FENGHAI.-(YICAI)-Company One1

Chapter 20

Options Markets: Introduction

Multiple Choice Questions

1. The price that the buyer of a call option pays to acquire the option is called the E. premium

2. The price that the writer of a call option receives to sell the option is called the E. premium

3. The price that the buyer of a put option pays to acquire the option is called the E. premium

4. The price that the writer of a put option receives to sell the option is called the A. premium

5. The price that the buyer of a call option pays for the underlying asset if she executes her option is called the A. strike price B. exercise price

6. The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the A. strike price B. exercise price

7. The price that the buyer of a put option receives for the underlying asset if she executes her option is called the A. strike price B. exercise price

8. The price that the writer of a put option receives for the underlying asset if the option is exercised depends on the market price at the time.

9. An American call option allows the buyer to

B. buy the underlying asset at the exercise price on or before the expiration date.

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C. sell the option in the open market prior to expiration. 10. A European call option allows the buyer to

C. sell the option in the open market prior to expiration.

D. buy the underlying asset at the exercise price on the expiration date.

11. An American put option allows the holder to

B. sell the underlying asset at the striking price on or before the expiration date.

C. potentially benefit from a stock price decrease with less risk than short selling the stock.

12. A European put option allows the holder to

C. potentially benefit from a stock price decrease with less risk than short selling the stock.

D. sell the underlying asset at the striking price on the expiration date. 13. An American put option can be exercised A. any time on or before the expiration date.

14. An American call option can be exercised A. any time on or before the expiration date.

15. A European call option can be exercised B. only on the expiration date.

16. A European put option can be exercised B. only on the expiration date.

17. To adjust for stock splits

A. the exercise price of the option is reduced by the factor of the split and the number of option held is increased by that factor.

18. All else equal, call option values are lower C. for high dividend payout policies.

19. All else equal, call option values are higher B. for low dividend payout policies.

20. The current market price of a share of AT&T stock is $50. If a call option on this stock has a strike price of $45, the call B. is in the money.

C. sells for a higher price than if the market price of AT&T stock is $40.

21. The current market price of a share of Boeing stock is $75. If a call option on this stock has a strike price of $70, the call

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B. is in the money.

C. sells for a higher price than if the market price of Boeing stock is $70.

22. The current market price of a share of CSCO stock is $22. If a call option on this stock has a strike price of $20, the call B. is in the money.

C. sells for a higher price than if the market price of CSCO stock is $21. 23. The current market price of a share of Disney stock is $30. If a call option on this stock has a strike price of $35, the call

A. is out of the money.24. The current market price of a share of CAT stock is $76. If a call option on this stock has a strike price of $76, the call

C. is at the money.

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25. A put option on a stock is said to be out of the money if B. the exercise price is less than the stock price.

26. A put option on a stock is said to be in the money if A. the exercise price is higher than the stock price. 27. A put option on a stock is said to be at the money if C. the exercise price is equal to the stock price.

28. A call option on a stock is said to be out of the money if A. the exercise price is higher than the stock price. 29. A call option on a stock is said to be in the money if B. the exercise price is less than the stock price.

30. A call option on a stock is said to be at the money if C. the exercise price is equal to the stock price.

31. The current market price of a share of JNJ stock is $60. If a put option on this stock has a strike price of $55, the put A. is in the money. B. is out of the money.

32. The current market price of a share of a stock is $80. If a put option on this stock has a strike price of $75, the put B. is out of the money.

C. sells for a higher price than if the market price of the stock is $75. 33. The current market price of a share of a stock is $20. If a put option on this stock has a strike price of $18, the put

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A. is out of the money.

C. sells for a higher price than if the strike price of the put option was $23.

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34. The current market price of a share of MOT stock is $15. If a put option on this stock has a strike price of $20, the put A. is out of the money.

35. The current market price of a share of PALM stock is $75. If a put option on this stock has a strike price of $79, the put B. is in the money.

C. can be exercised profitably.

36. The current market price of a share of AT&T stock is $50. If a put option on this stock has a strike price of $45, the put A. is out of the money.

C. sells for a lower price than if the market price of AT&T stock is $40. 37. The current market price of a share of Boeing stock is $75. If a put option on this stock has a strike price of $70, the put A. is out of the money.

38. The current market price of a share of CSCO stock is $22. If a put option on this stock has a strike price of $20, the put A. is out of the money.

C. sells for a higher price than if the strike price of the put option was $25.

39. The current market price of a share of Disney stock is $30. If a put option on this stock has a strike price of $35, the put A. is out of the money.

40. The current market price of a share of CAT stock is $76. If a put option on this stock has a strike price of $80, the put

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B. is in the money.

C. can be exercised profitably.

41. Lookback options have payoffs that

A. have payoffs that depend in part on the minimum or maximum price of the underlying asset during the life of the option.

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42. Barrier Options have payoffs that

A. have payoffs that only depend on the minimum price of the underlying asset during the life of the option. 43. Currency-Translated Options have

D. either asset or exercise prices denoted in a foreign currency. 44. Binary Options

A. are based on two possible outcomes - yes or no.

B. may make a payoff of a fixed amount if a specified event happens. C. may make a payoff of a fixed amount if a specified event does not happen.

45. The maximum loss a buyer of a stock call option can suffer is equal to

C. the call premium.

46. The maximum loss a buyer of a stock put option can suffer is equal to

C. the put premium.

47. 47.The lower bound on the market price of a convertible bond is A. its straight bond value. C. its conversion value.

48. The potential loss for a writer of a naked call option on a stock is B. unlimited

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If the buyer of the option elects to exercise the option and buy the stock at the exercise price, the seller of the option must go into the open market and buy the stock (in order to sell the stock to the buyer of the contract) at the current market price. Theoretically, the market price of a stock is unlimited; thus the writer's potential loss is unlimited. 49. The intrinsic value of an out-of-the-money call option is equal to B. zero.

50. The intrinsic value of an at-the-money call option is equal to

B. zero.

51. The intrinsic value of an in-of-the-money call option is equal to C. the stock price minus the exercise price.

52. The intrinsic value of an in-the-money put option is equal to D. the exercise price minus the stock price.

53. The intrinsic value of an at-the-money put option is equal to C. zero.

54. The intrinsic value of an out-of-the-money put option is equal to C. zero.

55. You write one JNJ February 70 put for a premium of $5. Ignoring transactions costs, what is the breakeven price of this position? A. $65

+$70 - $5 = $65.

56. You purchase one JNJ 75 call option for a premium of $3. Ignoring transaction costs, the break-even price of the position is

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D. $78 +75 + $3 = $78.

57. You write one AT&T February 50 put for a premium of $5. Ignoring transactions costs, what is the breakeven price of this position? C. $45

+$50 - $5 = $45.

58. You purchase one IBM 70 call option for a premium of $6. Ignoring transaction costs, the break-even price of the position is C. $76

+70 + $6 = $76.

59. Call options on IBM listed stock options are B. created by investors.

C. traded on various exchanges.

60. Buyers of call options __________ required to post margin deposits and sellers of put options __________ required to post margin deposits. C. are not; are

61. Buyers of put options anticipate the value of the underlying asset will __________ and sellers of call options anticipate the value of the underlying asset will ________. D. decrease; decrease

62. The Option Clearing Corporation is owned by B. the exchanges on which stock options are traded. 63. A covered call position is

D. the purchase of a share of stock with a simultaneous sale of a call on that stock.

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64. A covered call position is equivalent to a B. short put.

65. According to the put-call parity theorem, the value of a European put option on a non-dividend paying stock is equal to:

B. the call value plus the present value of the exercise price minus the stock price.

P = C - SO + PV(X) + PV(dividends), where SO = the market price of the stock, and X = the exercise price. 66. A protective put strategy is

A. a long put plus a long position in the underlying asset.

67. Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share C. increases to $506.

$500 + $5 = $505 (Breakeven). The price of the stock must increase to above $505 for the option holder to earn a profit.

68. Suppose the price of a share of IBM stock is $100. An April call option on IBM stock has a premium of $5 and an exercise price of $100. Ignoring commissions, the holder of the call option will earn a profit if the price of the share C. increases to $106.

$100 + $5 = $105 (Breakeven). The price of the stock must increase to above $105 for the option holder to earn a profit.

69. You purchased one AT&T March 50 call and sold one AT&T March 55 call. Your strategy is known as C. a vertical spread.

70. You purchased one AT&T March 50 put and sold one AT&T April 50 put. Your strategy is known as

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C. a horizontal spread.

71. Before expiration, the time value of a call option is equal to B. the actual call price minus the intrinsic value of the call.

72. Which of the following factors affect the price of a stock option A. the risk-free rate.

B. the riskiness of the stock. C. the time to expiration.

73. All of the following factors affect the price of a stock option except

D. the expected rate of return on the stock.

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74. The value of a stock put option is positively related to the following factors except C. the stock price.

75. The value of a stock put option is positively related to

A. the time to expiration. B. the striking price.

76. You purchase one September 50 put contract for a put premium of $2. What is the maximum profit that you could gain from this strategy? A. $4,800

-$200 + $5,000 = $4,800 (if the stock falls to zero.)

77. You purchase one June 70 put contract for a put premium of $4. What is the maximum profit that you could gain from this strategy? D. $6,600

-$400 + $7,000 = $6,600 (if the stock falls to zero.)

78. You purchase one IBM March 100 put contract for a put premium of $6. What is the maximum profit that you could gain from this strategy? C. $9,400

-$600 + $10,000 = $9,400 (if the stock falls to zero.)

79. The following price quotations were taken from the Wall Street Journal.

The premium on one February 90 call contract is

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C. $312.50

3 1/8 = $3.125 X 100 = $312.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

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80. The following price quotations on IBM were taken from the Wall Street Journal.

The premium on one IBM February 90 call contract is C. $412.50

4 1/8 = $4.125 X 100 = $412.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

81. The following price quotations on IBM were taken from the Wall Street Journal.

The premium on one IBM February 85 call contract is B. $887.50

8 7/8 = $8.875 X 100 = $887.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, the quoted premiums must be multiplied by 100.

Suppose you purchase one IBM May 100 call contract at $5 and write one IBM May 105 call contract at $2.

82. The maximum potential profit of your strategy is . C. $200.

-$100 - $5 = -$105; + $2 + $105 = $107; $2 x 100 = $200.

83. If, at expiration, the price of a share of IBM stock is $103, your profit would be

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C. zero.

$103 - $100 = $3 - $5 = -$2; +$2; $0 X 100 = $0.

84. The maximum loss you could suffer from your strategy is B. $300.

-$5 + $2 = -$3 X 100 = -$300.

85. What is the lowest stock price at which you can break even? C. $103.

x = $100 + $5 - $2; x = $103.

You buy one Xerox June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.

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86. Your strategy is called B. a long straddle.

87. Your maximum loss from this position could be C. $800.

-$5 + (-$3) = -$8 X 100 = $800.

88. At expiration, you break even if the stock price is equal to A. $52. C. $68.

Call: -$60 + (-$5) + $3 = $68 (Break even); Put: -$3 + $60 + (-$5) = $52 (Break even); thus, if price increases above $68 or decreases below $52, a profit is realized.

89. The put-call parity theorem

A. represents the proper relationship between put and call prices. B. allows for arbitrage opportunities if violated.

C. may be violated by small amounts, but not enough to earn arbitrage profits, once transaction costs are considered.

90. Some more \"traditional\" assets have option-like features; some of these instruments include A. callable bonds. B. convertible bonds. C. warrants.

91. Financial engineering

A. is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security. B. primarily takes place for institutional investor.

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92. Protective puts offer an advantage over stop-loss orders in that A. the stop-loss order will be executed as soon as the stock price reaches the trigger point, without allowing for a subsequent rebound, while the put allows the holder to wait.

C. the stop-loss order may actually be executed at a price below the trigger price.

93. A collar with a net outlay of approximately zero is an options strategy that

A. combines a put and a call to lock in a price range for a security. B. uses the gains from sale of a call to purchase a put.

94. Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk free interest rate is 5.5%. What is the price of a one-year put with strike price of $58? D. $11.97

P = 10 - 53 + 58/(1.05.5); P = 11.97

95. HighFlyer Stock currently sells for $48. A one-year call option with strike price of $55 sells for $9, and the risk free interest rate is 6%. What is the price of a one-year put with strike price of $55? B. $12.89

P = 9 - 48 + 55/(1.06); P = 12.89

96. ING Stock currently sells for $38. A one-year call option with strike price of $45 sells for $9, and the risk free interest rate is 4%. What is the price of a one-year put with strike price of $45? D. $18.72

P = 9 - 38 + 45/(1.04); P = 14.26

97. A callable bond should be priced the same as

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C. a straight bond plus a call option.

98. Asian options differ from American and European options in that C. their payoff is based on the average price of the underlying asset.

99. Trading in \"exotic options\" takes place B. in the over-the-counter market.

100. Currency options and currency futures options have different values because

A. the payoff on the currency option depends on the exchange rate at maturity, while the currency futures option's payoff depends on the exchange rate futures price at expiration.

101. Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $45. If the risk-free rate is 4%, the stock price is $48, and the put sells for $1.50, what should be the price of the call?

C. $6.23

C = 48 - 45/(1.04) + 1.50; C = $6.23.

102. Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $100. If the risk-free rate is 5%, the stock price is $103, and the put sells for $7.50, what should be the price of the call? B. $15.26

C = 103 - 100/(1.05) + 7.50; C = $15.26.

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103. Derivative securities are also called contingent claims because D. their payoffs depend on the prices of other assets. 104. Exchange-traded stock options expire E. on the third Friday of the expiration month.

105. You purchased a call option for $3.45 seventeen days ago. The call has a strike price of $45 and the stock is now trading for $51. If you exercise the call today, what will be your holding period return If you do not exercise the call today and it expires, what will be your holding period return B. 73.9%, -100%

If the call is exercised the gross profit is $51 - 45 = $6. The net profit is $6 - 3.45 = $2.55. The holding period return is $2.55/$3.45 = .739 (73.9%). If the call is not exercised, there is no gross profit and the investor loses the full amount of the premium. The return is ($0 - 3.45)/$3.45 = -1.00 (-100%).

106. An option with an exercise price equal to the underlying asset's price is C. at the money.

107. To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher. B. more; less

108. The minimum tick size for a CBOE option selling above $3 is ________. E. $0.125

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For options trading below $, the minimum tick size is 1/16 = $0.0625. For all other options on the CBOE the minimum tick size is 1/8 = $0.125. 109. What happens to an option if the underlying stock has a 2-for-1 split?

C. The exercise price would become half of what it was and the number of options held would double.

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110. What happens to an option if the underlying stock has a 3-for-1 split?

C. The exercise price would become one third of what it was and the number of options held would triple.

111. Suppose that you purchased a call option on the S&P 100 index. The option has an exercise price of 680 and the index is now at 720. What will happen when you exercise the option? D. You will receive $4,000.

When an index option is exercised the writer of the option pays cash to the option holder. The amount of cash equals the difference between the

exercise price of the option and the value of the index. In this case, you will receive 720 - 680 = 40 times the $100 multiplier, or $4,000. In other words, you are implicitly buying the index for 680 and selling it to the call writer for 720.

112. Suppose that you purchased a call option on the S&P 100 index. The option has an exercise price of 700 and the index is now at 760. What will happen when you exercise the option? B. You will receive $6,000.

When an index option is exercised the writer of the option pays cash to the option holder. The amount of cash equals the difference between the

exercise price of the option and the value of the index. In this case, you will receive 760 - 700 = 60 times the $100 multiplier, or $6,000. In other words, you are implicitly buying the index for 700 and selling it to the call writer for 760. Short Answer Questions

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113. What is the Option Clearing Corporation (OCC) and how does this organization facilitate option trading?

The OCC is the other side of every option transaction. As a result, the buyers and sellers do not have to be matched with each other. In addition, the OCC guarantees their side of the transaction.

Feedback: The purpose of this question is to ascertain whether the student understands how the options market differs from the markets previously studied in terms of the existence of the \"middleperson\" in the options market.

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114. Describe the protective put. What are the advantages of such a strategy?

A protective put consists of investing in stock and simultaneously

purchasing a put option on the stock. Regardless of what happens to the price of the stock, you are guaranteed a payoff equal to the put option exercise price.

Feedback: The purpose of this question is to determine if the student understands the mechanism of one the more common and less complex option strategies.

115. Discuss the differences in writing covered and naked calls. Are risks involved in the two strategies similar or different Explain.

Writing a covered call is selling a call on stock the investor owns. Thus, this strategy is very conservative; the investor receives the premium

income from writing the call. If the call is exercised, the stock is called away from the investor; thus the investor has limited his or her upside potential.

Writing a naked call is a very risky strategy. The investor sells a call on a stock the investor does not own. If the price of the stock increases, the option will be exercised and the investor must go into the open market and buy the stock at the prevailing market price.

Theoretically, the price to which the stock can increase is unlimited; thus, the investor's potential loss in unlimited.

Feedback: The purpose of this question is to be sure that the student

differentiates between the very common and conservative strategy of writing covered calls and the risky strategy of writing naked calls.

116. Draw a graph that shows the payoff and profit to the holder of a call option at expiration. Draw another graph that shows the payoff to the holder of a put option at expiration. Draw a third graph that shows the payoff of a long straddle at expiration. Be sure to label the axes and all other relevant features of the graphs.

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The first graph should look like Figure 20.3 on page 706. The second graph should look like Figure 20.5 on page 708. The third graph should look like panel C in Figure 20.9 on page 714. The labels on the graph should include Stock Price on the horizontal axis, Value of the Option on the vertical axis, profit, exercise price, and price of the option, as shown in the textbook figures.

Feedback: This question allows the student to demonstrate his or her understanding of the options concepts in a visual way. The third graph measures the student's comprehension of the straddle approach.

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117. List two types of exotic options and describe their characteristics.

There are five exotic options mentioned in the textbook:

Asian Options have payoffs that depend on the average price of the underlying asset during at least some portion of the life of the option. Barrier Options have payoffs that depend both on the asset's price at expiration and on whether the underlying asset's price has crossed through some barrier. If the asset's price crosses the barrier the option might automatically expire. Or if the asset's price does not cross the barrier the option may not pay.

Lookback Options have payoffs linked to the maximum or minimum price during the life of the option. The option would \"look back\" to see what the relevant price was and the payoff would be based on that rather than on the price at the expiration date.

Currency-Translated Options have either asset or exercise prices denoted in a foreign currency. For example, an exchange rate may be specified as the rate at which a foreign currency can be converted into dollars. Binary Options are based on two possible outcomes - yes or no. If a

specified event happens, the option may make a payoff of a fixed amount. If the event does not happen, there may be no payoff. The opposite arrangement is also possible.

Feedback: This question gives the student an opportunity to explore some of the results of financial engineering. It verifies the student's understanding of items that go beyond the basic options.

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