Multiple Choice
1.If a stock’s variance of return increases and everything else remains constant, the price of a call option will
a.decline.
b.remain unchanged.
c.increase.
d.gradually increase.
2.XYZ pays no dividends and sells for $50. There is a one-year call to buy 100 shares at $50 selling for $4.00. If interest rates are 6%, what should a one-year put sell for?
a.$1.17
b.$1.25
c.$1.34
d.$1.56
3.XYZ pays no dividends and sells for $50. There is a one-year call to buy 100 shares at $50 selling for $3.75. If interest rates are 6%, what should a one-year put sell for?
a.$0.92
b.$1.17
c.$1.34
d.$1.56
4.A person holds 2 XYZ APR 60 calls. What is their holding after a 2 for 1 stock split?
a.2 XYZ APR 60 calls
b.4 XYZ APR 30 calls
c.2 XYZ APR 30 calls
d.4 XYZ APR 60 calls
5.For at-the-money stock options, put/call parity requires that, for otherwise similar options,
a.puts sell for more than calls.
b.puts sell for the same price as calls.
c.puts sell for less than calls.
d.puts sell for at least as much as calls.
6.The Black-Scholes option pricing model was developed in _____.
a.1887
b.1923
c.1973
d.1987
7.Finance is sometimes called the study of
a.arbitrage.
b.parity relationships.
c.equal value.
d.riskless relationships.
8.According to pricing theory, a long stock position is most similar to
a.a short call and a short put.
b.a short call and a long put.
c.a long call and a short put.
d.a long call and a long put.
9.A covered call is most similar to
a.a long call.
b.a long put.
c.a short call.
d.a short put.
10.The value of a call option depends on all of the following except
a.the expected return on the underlying asset.
b.the current interest rate.
c.the life of the option.
d.the volatility of the underlying asset.
11.If interest rates rise, the price of a call ___ and the price of a put ___.
a.increases, increases
b.increases, decreases
c.decreases, increases
d.decreases, decreases