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Chapter 20 M/C
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Firms regularly use the following to reduce risk: I) Currency options
II) Interest-rate options
III) Commodity options
A. I only B. II only C. III only D. I, II, and III
D. I, II, and III
The following are examples of disguised options for firms:
I) acquiring growth opportunities
II) ability of the firm to terminate a project when it is no longer profitable
III) options that are associated with corporate securities that provide flexibility to change the terms of the issues
A. I only B. II only C. I and III only D. I, II, and III
D. I, II, and III
An investor, in practice, can buy:
I) an option on a single share of stock
II) options that are in multiples of 100
III) a minimum order of 100 options on a share of stock
A. I only B. II and III only C. II only D. III only
B. II and III only
An option that can be exercised any time before expiration date is called:
A. an European option B. an American option C. a call option D. a put option
B. an American option
The two principal options exchanges in the U.S.A. are: I) International Securities Exchange II) New York Stock Exchange III) NASDAQ
IV) Chicago Board of Options Exchange
A. II and III only
B. I and II only
C. I and IV only
D. III and IV only
C. I and IV only
The owner of a regular exchange-listed call-option on the stock:
A. has the right to buy 100 shares of the underlying stock at the exercise price
B. has the right to sell 100 shares of the underlying stock at the exercise price
C. has the obligation to buy 100 shares of the underlying stock at the exercise price
D. has the obligation to sell 100 shares of the underlying stock at the exercise price
A. has the right to buy 100 shares of the underlying stock at the exercise price
The owner of a regular exchange-listed put-option on the stock:
A. has the right to buy 100 shares of the underlying stock at the exercise price
B. has the right to sell 100 shares of the underlying stock at the exercise price
C. has the obligation to buy 100 shares of the underlying stock at the exercise price
D. has the obligation to sell 100 shares of the underlying stock at the exercise price
B. has the right to sell 100 shares of the underlying stock at the exercise price
In June 2007, an investor buys a call option on Amgen stock with an exercise of price of $65 and expiring in January 2009. If the stock price in June 2003 is $60, then this option is:
I) in-the-money
II) out-of-the-money
III) a LEAPS
A. I only B. II only C. III only D. II and III only
D. II and III only
The Position diagram for a put with the same exercise price and premium as the call on the same underlying asset with the same maturity is (like):
A. the inverse of the call diagram along the put price
B. unrelated to the call diagram no matter what the exercise price
C. the mirror image of the call diagram around the exercise price
D. exactly the same as the call diagram for the given exercise price
C. the mirror image of the call diagram around the exercise price
In June 2007, an investor buys a put option on Genentech stock with an exercise of price of $75 and expiring in January 2009. If the stock price in June 2007 is $80, then this option is: I) in-the-money II) out-of-the-money
III) a LEAPS
A. I only B. II only C. III only D. I and III only
D. I and III only
Aputoptiongivestheownertheright:
A. and the obligation to buy an asset at a given price
B. and the obligation to sell an asset at a given price
C. but not the obligation to buy an asset at a given price
D. but not the obligation to sell an asset at a given price
D. but not the obligation to sell an asset at a given price
Thebuyerofacalloptionhastherighttoexercise,butthewriterofthecalloptionhas:
A. The choice to offset with a put option
B. The obligation to deliver the shares at exercise price
C. The choice to deliver shares or take a cash payoff
D. The choice of exercising the call or not
B. The obligation to deliver the shares at exercise price
Suppose an investor sells (writes) a put option. What will happen if the stock price on the exercise date exceeds the exercise price?
A. The seller will need to deliver stock to the owner of the option
B. The seller will be obliged to buy stock from the owner of the option
C. The owner will not exercise his option
D. None of the above
C. The owner will not exercise his option
Thewriter(seller)ofaregularexchange-listedcall-optiononthestock:
A. has the right to buy 100 shares of the underlying stock at the exercise price
B. has the right to sell 100 shares of the underlying stock at the exercise price
C. has the obligation to buy 100 shares of the underlying stock at the exercise price
D. has the obligation to sell 100 shares of the underlying stock at the exercise price
D. has the obligation to sell 100 shares of the underlying stock at the exercise price
The writer( seller) of a regular exchange-listed put-option on the stock:
A. has the right to buy 100 shares of the underlying stock at the exercise price
B. has the right to sell 100 shares of the underlying stock at the exercise price
C. has the obligation to buy 100 shares of the underlying stock at the exercise price
D. has the obligation to sell 100 shares of the underlying stock at the exercise price
C. has the obligation to buy 100 shares of the underlying stock at the exercise price
The value of a put option at expiration is:
A. market price of the share minus the exercise price
B. higher of the exercise price minus market price of the share and zero
C. the exercise price
D. none of the above
B. higher of the exercise price minus market price of the share and zero
Figure-1 depicts the:
A. position diagram for the buyer of a call option B. profit diagram for the buyer of a call option
C. position diagram for the buyer of a put option D. profit diagram for the buyer of a put option
B. profit diagram for the buyer of a call option
Figure-2depictsthe:
A. position diagram for the buyer of a call option B. profit diagram for the buyer of a call option
C. position diagram for the buyer of a put option D. profit diagram for the buyer of a put option
D. profit diagram for the buyer of a put option
Figure-3depictsthe:
A. position diagram for the writer (seller) of a call option
B. profit diagram for the writer (seller) of a call option
C. position diagram for the writer (seller) of a put option
D. profit diagram for the writer (seller) of a put option
D. profit diagram for the writer (seller) of a put option
Figure-4 depicts the:
A. position diagram for the writer (seller) of a call option
B. profit diagram for the writer (seller) of a call option
C. position diagram for the writer (seller) of a put option
D. profit diagram for the writer (seller) of a put option
A. position diagram for the writer (seller) of a call option
Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price? (Ignore transaction costs)
A. The value of two shares of stock
B. The value of one share of stock plus the exercise price
C. The exercise price
D. The value of one share of stock minus the exercise price
C. The exercise price
Which of the following investors would be happy to see the stock price rise sharply?
I) Investor who owns the stock and a put option II) Investor who has sold a put option and bought a call option
III) Investor who owns the stock and has sold a call option
IV) Investor who has sold a call option
A. I and II only B. III and IV only C. III only D. IV only
A. I and II only
Buying a call option, investing the present value of the exercise price in T-bills, and short selling the underlying share is the same as:
A. Buying a call and a put
B. Buying a put and a share
C. Buying a put
D. Selling a call
C. Buying a put
Buyingthestockandtheputoptiononthestockprovidesthesamepayoffas:
A. investing the present value of the exercise price in T-bills and buying the call option
B. on the stock
C. short selling the stock and buying a call option on the stock
D. writing (selling) a put option and buying a call option on the stock
E. none of above
A. investing the present value of the exercise price in T-bills and buying the call option
Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by:
A. Buying the underlying stock and selling a call B. Selling a put and lending the present value of the exercise price
C. Buying the underlying stock and buying a put D. Buying the underlying stock and selling a put
C. Buying the underlying stock and buying a put
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