Question 1
An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The call premium is $12. If the option has delta of .5, what is its elasticity?
A. 4.17
B. 2.32
C. 1.79
D. 0.5
E. 1.5
Question 2
use the Black-Scholes Option Pricing Model for the following problem.
Given: SO= $70; X = $70; T = 70 days; r = 0.06 annually (0.0001648 daily); Std Dev = 0.020506 (daily).
No dividends will be paid before option expires. The value of the call option is _______.
A. $10.16
B. $5.16
C. $0.00
D. $2.16
E. none of the above
Question 3
What is the time value of the call? Refer To: 21-82
A. $8
B. $12
C. $6 (Got it from Internet Search, since information is not given E is the correct choice.......Take your call)
D. $4
E. cannot be determined without more information.
Question 4
If the hedge ratio for a stock call is 0.70, the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.
A. 0.70
B. 0.30
C. -0.70
D. -0.30
E. -.17
Question 5
Vega is defined as
A. the change in the value of an option for a dollar change in the price of the underlying asset.
B. the change in the value of the underlying asset for a dollar change in the call price.
C. the percentage change in the value of an option for a one percent change in the value of the underlying asset.
D. the change in the volatility of the underlying stock price.
E. the sensitivity of an option's price to changes in volatility
Question 6
All the inputs in the Black-Scholes Option Pricing Model are directly observable except
A. the price of the underlying security.
B. the risk free rate of interest.
C. the time to expiration.
D. the variance of returns of the underlying asset return.
E. none of the above.
Question 7
Prior to expiration
A. the intrinsic value of a call option is greater than its actual value.
B. the intrinsic value of a call option is always positive.
C. the actual value of a call option is greater than the intrinsic value.
D. the intrinsic value of a call option is always greater than its time value.
E. none of the above.
Question8
An American call option buyer on a non-dividend paying stock will
A. always exercise the call as soon as it is in the money.
B. only exercise the call when the stock price exceeds the previous high.
C. never exercise the call early.
D. buy an offsetting put whenever the stock price drops below the strike price.
E. none of the above.
Question 9
If the company unexpectedly announces it will pay its first-ever dividend 3 months from today, you would expect that
A. the call price would increase.
B. the call price would decrease.
C. the call price would not change.
D. the put price would decrease.
E. the put price would not change.
Question 10
At expiration, the time value of an at the money put option is always
A. equal to zero.
B. equal to the stock price minus the exercise price.
C. negative.
D. positive.
E. none of the above.
Question 11
Portfolio A consists of 400 shares of stock and 400 calls on that stock. Portfolio B consists of 500 shares of stock. The call delta is 0.5. Which portfolio has a higher dollar exposure to a change in stock price?
A. Portfolio B.
B. Portfolio A.
C. The two portfolios have the same exposure.
D. A if the stock price increases and B if it decreases.
E. B if the stock price decreases and A if it increases.
Question 12
use the two state put option value in this problem. SO= $100; X = $120; the two possibilities for STare $150 and $80. The range of P across the two states is _____; the hedge ratio is _______.
A. $0 and $40; -4/7
B. $0 and $50; +4/7
C. $0 and $40; +4/7
D. $0 and $50; -4/7
E. $20 and $40; +1/2