Chapter 20 Options Markets Introduction.docx

Chapter 20 Options Markets Introduction.docx

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Chapter20OptionsMarketsIntroduction

Chapter20

OptionsMarkets:

Introduction

MultipleChoiceQuestions

1. Thepricethatthebuyerofacalloptionpaystoacquiretheoptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. acquisitionprice.

E. premium.

2. Thepricethatthewriterofacalloptionreceivestoselltheoptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. acquisitionprice.

E. premium.

3. Thepricethatthebuyerofaputoptionpaystoacquiretheoptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. acquisitionprice.

E. premium.

4. Thepricethatthewriterofaputoptionreceivestoselltheoptioniscalledthe 

A. premium.

B. exerciseprice.

C. executionprice.

D. acquisitionprice.

E. strikeprice.

5. Thepricethatthebuyerofacalloptionpaysfortheunderlyingassetifsheexecutesheroptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. strikepriceorexecutionprice.

E. strikepriceorexerciseprice.

6. Thepricethatthewriterofacalloptionreceivesfortheunderlyingassetifthebuyerexecutesheroptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. strikepriceorexerciseprice.

E. strikepriceorexecutionprice.

7. Thepricethatthebuyerofaputoptionreceivesfortheunderlyingassetifsheexecutesheroptioniscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. strikepriceorexecutionprice.

E. strikepriceorexerciseprice.

8. Thepricethatthewriterofaputoptionreceivesfortheunderlyingassetiftheoptionisexercisediscalledthe 

A. strikeprice.

B. exerciseprice.

C. executionprice.

D. strikepriceorexerciseprice.

E. Noneoftheseiscorrect.

9. AnAmericancalloptionallowsthebuyerto 

A. selltheunderlyingassetattheexercisepriceonorbeforetheexpirationdate.

B. buytheunderlyingassetattheexercisepriceonorbeforetheexpirationdate.

C. selltheoptionintheopenmarketpriortoexpiration.

D. selltheunderlyingassetattheexercisepriceonorbeforetheexpirationdateandselltheoptionintheopenmarketpriortoexpiration.

E. buytheunderlyingassetattheexercisepriceonorbeforetheexpirationdateandselltheoptionintheopenmarketpriortoexpiration.

10. AEuropeancalloptionallowsthebuyerto 

A. selltheunderlyingassetattheexercisepriceontheexpirationdate.

B. buytheunderlyingassetattheexercisepriceonorbeforetheexpirationdate.

C. selltheoptionintheopenmarketpriortoexpiration.

D. buytheunderlyingassetattheexercisepriceontheexpirationdate.

E. selltheoptionintheopenmarketpriortoexpirationandbuytheunderlyingassetattheexercisepriceontheexpirationdate.

11. AnAmericanputoptionallowstheholderto 

A. buytheunderlyingassetatthestrikingpriceonorbeforetheexpirationdate.

B. selltheunderlyingassetatthestrikingpriceonorbeforetheexpirationdate.

C. potentiallybenefitfromastockpriceincrease.

D. selltheunderlyingassetatthestrikingpriceonorbeforetheexpirationdateandpotentiallybenefitfromastockpriceincrease.

E. buytheunderlyingassetatthestrikingpriceonorbeforetheexpirationdateandpotentiallybenefitfromastockpriceincrease.

12. AEuropeanputoptionallowstheholderto 

A. buytheunderlyingassetatthestrikingpriceonorbeforetheexpirationdate.

B. selltheunderlyingassetatthestrikingpriceonorbeforetheexpirationdate.

C. potentiallybenefitfromastockpriceincrease.

D. selltheunderlyingassetatthestrikingpriceontheexpirationdate.

E. potentiallybenefitfromastockpriceincreaseandselltheunderlyingassetatthestrikingpriceontheexpirationdate.

13. AnAmericanputoptioncanbeexercised 

A. anytimeonorbeforetheexpirationdate.

B. onlyontheexpirationdate.

C. anytimeintheindefinitefuture.

D. onlyafterdividendsarepaid.

E. Noneoftheseiscorrect.

14. AnAmericancalloptioncanbeexercised 

A. anytimeonorbeforetheexpirationdate.

B. onlyontheexpirationdate.

C. anytimeintheindefinitefuture.

D. onlyafterdividendsarepaid.

E. Noneoftheseiscorrect.

15. AEuropeancalloptioncanbeexercised 

A. anytimeinthefuture.

B. onlyontheexpirationdate.

C. ifthepriceoftheunderlyingassetdeclinesbelowtheexerciseprice.

D. immediatelyafterdividendsarepaid.

E. Noneoftheseiscorrect.

16. AEuropeanputoptioncanbeexercised 

A. anytimeinthefuture.

B. onlyontheexpirationdate.

C. ifthepriceoftheunderlyingassetdeclinesbelowtheexerciseprice.

D. immediatelyafterdividendsarepaid.

E. Noneoftheseiscorrect.

17. Toadjustforstocksplits 

A. theexercisepriceoftheoptionisreducedbythefactorofthesplitandthenumberofoptionsheldisincreasedbythatfactor.

B. theexercisepriceoftheoptionisincreasedbythefactorofthesplitandthenumberofoptionsheldisreducedbythatfactor.

C. theexercisepriceoftheoptionisreducedbythefactorofthesplitandthenumberofoptionsheldisreducedbythatfactor.

D. theexercisepriceoftheoptionisincreasedbythefactorofthesplitandthenumberofoptionsheldisincreasedbythatfactor.

E. Noneoftheseiscorrect

18. Allelseequal,calloptionvaluesarelower 

A. inthemonthofMay.

B. forlowdividendpayoutpolicies.

C. forhighdividendpayoutpolicies.

D. inthemonthofMayandforlowdividendpayoutpolicies.

E. inthemonthofMayandforhighdividendpayoutpolicies.

19. Allelseequal,calloptionvaluesarehigher 

A. inthemonthofMay.

B. forlowdividendpayoutpolicies.

C. forhighdividendpayoutpolicies.

D. inthemonthofMayandforlowdividendpayoutpolicies.

E. inthemonthofMayandforhighdividendpayoutpolicies.

20. ThecurrentmarketpriceofashareofAT&Tstockis$50.Ifacalloptiononthisstockhasastrikepriceof$45,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. sellsforahigherpricethanifthemarketpriceofAT&Tstockis$40.

D. isoutofthemoneyandsellsforahigherpricethanifthemarketpriceofAT&Tstockis$40.

E. isinthemoneyandsellsforahigherpricethanifthemarketpriceofAT&Tstockis$40.

21. ThecurrentmarketpriceofashareofBoeingstockis$75.Ifacalloptiononthisstockhasastrikepriceof$70,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. sellsforahigherpricethanifthemarketpriceofBoeingstockis$70.

D. isoutofthemoneyandsellsforahigherpricethanifthemarketpriceofBoeingstockis$70.

E. isinthemoneyandsellsforahigherpricethanifthemarketpriceofBoeingstockis$70.

22. ThecurrentmarketpriceofashareofCSCOstockis$22.Ifacalloptiononthisstockhasastrikepriceof$20,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. sellsforahigherpricethanifthemarketpriceofCSCOstockis$21.

D. isoutofthemoneyandsellsforahigherpricethanifthemarketpriceofCSCOstockis$21.

E. isinthemoneyandsellsforahigherpricethanifthemarketpriceofCSCOstockis$21.

23. ThecurrentmarketpriceofashareofDisneystockis$30.Ifacalloptiononthisstockhasastrikepriceof$35,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. canbeexercisedprofitably.

D. isoutofthemoneyandcanbeexercisedprofitably.

E. isinthemoneyandcanbeexercisedprofitably.

24. ThecurrentmarketpriceofashareofCATstockis$76.Ifacalloptiononthisstockhasastrikepriceof$76,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. isatthemoney.

D. isoutofthemoneyandisatthemoney.

E. isinthemoneyandisatthemoney.

25. ThecurrentmarketpriceofashareofMOTstockis$24.Ifacalloptiononthisstockhasastrikepriceof$24,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. isatthemoney.

D. isoutofthemoneyandisatthemoney.

E. isinthemoneyandisatthemoney.

26. ThecurrentmarketpriceofashareofIBMstockis$80.Ifacalloptiononthisstockhasastrikepriceof$80,thecall 

A. isoutofthemoney.

B. isinthemoney.

C. isatthemoney.

D. isoutofthemoneyandisatthemoney.

E. isinthemoneyandisatthemoney.

27. Aputoptiononastockissaidtobeoutofthemoneyif 

A. theexercisepriceishigherthanthestockprice.

B. theexercisepriceislessthanthestockprice.

C. theexercisepriceisequaltothestockprice.

D. thepriceoftheputishigherthanthepriceofthecall.

E. thepriceofthecallishigherthanthepriceoftheput.

28. Aputoptiononastockissaidtobeinthemoneyif 

A. theexercisepriceishigherthanthestockprice.

B. theexercisepriceislessthanthestockprice.

C. theexercisepriceisequaltothestockprice.

D. thepriceoftheputishigherthanthepriceofthecall.

E. thepriceofthecallishigherthanthepriceoftheput.

29. Aputoptiononastockissaidtobeatthemoneyif 

A. theexercisepriceishigherthanthestockprice.

B. theexercisepriceislessthanthestockprice.

C. theexercisepriceisequaltothestockprice.

D. thepriceoftheputishigherthanthepriceofthecall.

E. thepriceofthecallishigherthanthepriceoftheput.

30. Acalloptiononastockissaidtobeoutofthemoneyif 

A. theexercisepriceishigherthanthestockprice.

B. theexercisepriceislessthanthestockprice.

C. theexercisepriceisequaltothestockprice.

D. thepriceoftheputishigherthan