Chapter 20
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Subject
Finance
Date
Jan 9, 2024
Type
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48
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1.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Use
Figure 20.1
, which lists prices of various Microsoft options. Use the data in the figure to calculate the payoff and the profits for investments in each of the following December 17 expiration options, assuming that the stock
price on the expiration date is $300.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.
$
$
$
$
$
$
$
$
$
$
$
$
Payoff
Profit or Loss
a. Call option,
X
= $290
10.00
(7.25)
b. Put option,
X
= $290
0.00
(11.72)
c. Call option,
X
= $300
0.00
(11.75)
d. Put option,
X
= $300
0.00
(16.25)
e. Call option,
X
= $310
0.00
(7.62)
f. Put option,
X
= $310
10.00
(12.05)
Explanation:
Cost
Payoff
Profit
a. Call option,
X
= $290
$ 17.25
$ 10.00
$ −7.25
b. Put option,
X
= $290
11.72
0.00
−11.72
c. Call option,
X
= $300
11.75
0.00
−11.75
d. Put option,
X
= $300
16.25
0.00
−16.25
e. Call option,
X
= $310
7.62
0.00
−7.62
f. Put option,
X
= $310
22.05
10.00
−12.05
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
2.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock’s current price,
S
0
, is $100, and a call option expiring in one year has an exercise price,
X
, of $100 and is selling at a
price,
C
0
, of $10. With $10,000 to invest, you are considering three alternatives.
a.
Invest all $10,000 in the stock, buying 100 shares.
b.
Invest all $10,000 in 1,000 options (10 contracts).
c.
Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest.
What is your rate of return for each alternative for the following four stock prices in one year?
In terms of dollar returns
In terms of rate of return
Complete this question by entering your answers in the tabs below.
What is your rate of return for each alternative for the following four stock prices in one year?
The total value of your portfolio in one year for each of the following stock prices is:
Note: Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.
Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.
In terms of
dollar returns
In terms of
rate of return
Show less
$
$
$
$
Price of Stock one year from Now
Stock Price
80
100
110
120
a. All stocks (100 shares)
8,000
10,000
11,000
12,000
b. All options (1,000 options)
0
0
10,000
20,000
c. Bills + 100 options
9,360
9,360
10,360
11,360
Explanation:
No further explanation details are available for this problem.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
2.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock’s current price,
S
0
, is $100, and a call option expiring in one year has an exercise price,
X
, of $100 and is selling at a
price,
C
0
, of $10. With $10,000 to invest, you are considering three alternatives.
a.
Invest all $10,000 in the stock, buying 100 shares.
b.
Invest all $10,000 in 1,000 options (10 contracts).
c.
Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest.
What is your rate of return for each alternative for the following four stock prices in one year?
In terms of dollar returns
In terms of rate of return
Complete this question by entering your answers in the tabs below.
What is your rate of return for each alternative for the following four stock prices in one year?
The percentage return of your portfolio in one year for each of the following stock prices is:
Note: Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.
Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.
In terms of
dollar returns
In terms of
rate of return
Show less
$
$
$
$
Price of Stock one year from Now
Stock Price
80
100
110
120
a. All stocks (100 shares)
(20)
%
0
%
10
%
20
%
b. All options (1,000 options)
(100)
%
(100)
%
0 %
100
%
c. Bills + 100 options
(6.40)
%
(6.40)
%
3.60
%
13.60
%
Explanation:
No further explanation details are available for this problem.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
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3.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next six months. You do not know whether it will go
up or down, however. The current price of the stock is $100 per share, and the price of a six-month call option at an exercise price of $100 is $10.
Required:
a.
If the semiannual risk-free interest rate is 3%, what must be the price of a six-month put option on P.U.T.T. stock at an exercise price of $100? (The stock pays no dividends.)
b.
What would be a simple options strategy to exploit your conviction about the stock price’s future movements? How far would it have to move in either direction for you to make a profit on your initial investment?
Required A
Required B
Complete this question by entering your answers in the tabs below.
If the semiannual risk-free interest rate is 3%, what must be the price of a six-month put option on P.U.T.T. stock at an
exercise price of $100? (The stock pays no dividends.)
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Required A
Required B
$
Price of a six-month put option on P.U.T.T. stock
8.53
Explanation:
a.
From put-call parity:
b.
Purchase a straddle, i.e., both a put and a call on the stock. The total cost of the straddle is $10.00 + $8.53 = $18.53
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
3.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it is going to break far out of that range in the next six months. You do not know whether it will go
up or down, however. The current price of the stock is $100 per share, and the price of a six-month call option at an exercise price of $100 is $10.
Required:
a.
If the semiannual risk-free interest rate is 3%, what must be the price of a six-month put option on P.U.T.T. stock at an exercise price of $100? (The stock pays no dividends.)
b.
What would be a simple options strategy to exploit your conviction about the stock price’s future movements? How far would it have to move in either direction for you to make a profit on your initial investment?
Required A
Required B
Complete this question by entering your answers in the tabs below.
What would be a simple options strategy to exploit your conviction about the stock price’s future movements? How far would
it have to move in either direction for you to make a profit on your initial investment?
Note: Round your intermediate calculations and final answer to 2 decimal places.
Required A
Required B
$
Strategy
Straddle
Price change for profit
18.53
Explanation:
a.
From put-call parity:
b.
Purchase a straddle, i.e., both a put and a call on the stock. The total cost of the straddle is $10.00 + $8.53 = $18.53
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
4.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $50 per share for months, and you believe it is going to stay in that range for the next six months. The price of a 6-month put option with
an exercise price of $50 is $4.
Required:
a.
If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $50 if it is at the money? (The stock pays no dividends.)
b.
What would be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future movement? What is the most money you can make on this position? How far can the stock price move in
either direction before you lose money?
c.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?
Required A
Required B
Complete this question by entering your answers in the tabs below.
If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month call option on C.A.L.L. stock at an
exercise price of $50 if it is at the money? (The stock pays no dividends.)
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Required A
Required B
Required C
$
Price of a 6-month call option
4.73
Explanation:
a.
From put-call parity:
b.
Sell a straddle, i.e., sell a call and a put, to realize premium income of: $4.73 + $4 = $8.73
If the stock ends up at $50, both options will be worthless → profit will be $8.73. This is your maximum possible profit since, at any other stock price, you will have to pay off on either the call or the put. The stock price can
move by $8.73 in either direction before your profits become negative.
c.
Buy the call, sell (write) the put, lend
$50 ÷
(1.03)
1/2
The payoff is as follows:
Position
Immediate CF
CF in 6 months
S
T
<
X
S
T
>
X
Call (long)
C = 4.73
0
S
T
− 50
Put (short)
−P = −4.00
−(50 − S
T
)
0
Lending position
50 ÷ 1.03
0.5
= 49.27
50
50
Total
50
S
T
S
T
By the put-call parity theorem, the initial outlay equals the stock price:
S
0
= $50
In either scenario, you end up with the same payoff as you would if you bought the stock itself.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
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4.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $50 per share for months, and you believe it is going to stay in that range for the next six months. The price of a 6-month put option with
an exercise price of $50 is $4.
Required:
a.
If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $50 if it is at the money? (The stock pays no dividends.)
b.
What would be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future movement? What is the most money you can make on this position? How far can the stock price move in
either direction before you lose money?
c.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?
Required A
Required C
Complete this question by entering your answers in the tabs below.
What would be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future
movement? What is the most money you can make on this position? How far can the stock price move in either direction
before you lose money?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Required A
Required B
Required C
Show less
Strategy
Sell a straddle
Amount
8.73
Stock price
8.73
Explanation:
a.
From put-call parity:
b.
Sell a straddle, i.e., sell a call and a put, to realize premium income of: $4.73 + $4 = $8.73
If the stock ends up at $50, both options will be worthless → profit will be $8.73. This is your maximum possible profit since, at any other stock price, you will have to pay off on either the call or the put. The stock price can
move by $8.73 in either direction before your profits become negative.
c.
Buy the call, sell (write) the put, lend
$50 ÷
(1.03)
1/2
The payoff is as follows:
Position
Immediate CF
CF in 6 months
S
T
<
X
S
T
>
X
Call (long)
C = 4.73
0
S
T
− 50
Put (short)
−P = −4.00
−(50 − S
T
)
0
Lending position
50 ÷ 1.03
0.5
= 49.27
50
50
Total
50
S
T
S
T
By the put-call parity theorem, the initial outlay equals the stock price:
S
0
= $50
In either scenario, you end up with the same payoff as you would if you bought the stock itself.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
4.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $50 per share for months, and you believe it is going to stay in that range for the next six months. The price of a 6-month put option with
an exercise price of $50 is $4.
Required:
a.
If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $50 if it is at the money? (The stock pays no dividends.)
b.
What would be a simple options strategy using a put and a call to exploit your conviction about the stock price’s future movement? What is the most money you can make on this position? How far can the stock price move in
either direction before you lose money?
c.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the stock at expiration? What is the net cost of establishing that position now?
Required B
Required C
Complete this question by entering your answers in the tabs below.
How can you create a position involving a put, a call, and riskless lending that would have the same payoff structure as the
stock at expiration? What is the net cost of establishing that position now?
Note: Enter all values as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places.
Leave no cells blank - be certain to enter "0" wherever required.
Required A
Required B
Required C
Show less
Position
Immediate CF
Call (long)
4.73
Put (short)
4.00
Lending position
49.27
Total
50.00
Explanation:
a.
From put-call parity:
b.
Sell a straddle, i.e., sell a call and a put, to realize premium income of: $4.73 + $4 = $8.73
If the stock ends up at $50, both options will be worthless → profit will be $8.73. This is your maximum possible profit since, at any other stock price, you will have to pay off on either the call or the put. The stock price can
move by $8.73 in either direction before your profits become negative.
c.
Buy the call, sell (write) the put, lend
$50 ÷
(1.03)
1/2
The payoff is as follows:
Position
Immediate CF
CF in 6 months
S
T
<
X
S
T
>
X
Call (long)
C = 4.73
0
S
T
− 50
Put (short)
−P = −4.00
−(50 − S
T
)
0
Lending position
50 ÷ 1.03
0.5
= 49.27
50
50
Total
50
S
T
S
T
By the put-call parity theorem, the initial outlay equals the stock price:
S
0
= $50
In either scenario, you end up with the same payoff as you would if you bought the stock itself.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
5.
Award:
10.00
points
Problems?
Adjust credit
for all students.
You are a portfolio manager who uses options positions to customize the risk profile of your clients. In each case, what strategy is best given your client’s objective?
Required:
a. •
Performance to date: Up 16%.
•
Client objective: Earn at least 15%.
•
Your forecast: Good chance of major market movements, either up or down, between now and end of the year.
b. •
Performance to date: Up 16%.
•
Client objective: Earn at least 15%.
•
Your forecast: Good chance of a major market decline between now and end of year.
a. What strategy is best given your client’s objective?
Long straddle
b. What strategy is best given your client’s objective?
Long put options
Explanation:
a.
A long straddle produces gains if prices move up or down and limited losses if prices do not move. A short straddle produces significant losses if prices move significantly up or down. A bullish spread produces limited gains if
prices move up.
b.
Long put positions gain when stock prices fall and produce very limited losses if prices instead rise. Short calls also gain when stock prices fall but create losses if prices instead rise. The other two positions will not protect the
portfolio should prices fall.
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
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6.
Award:
10.00
points
Problems?
Adjust credit
for all students.
An investor purchases a stock for $38 and a put for $0.50 with a strike price of $35. The investor also sells a call for $0.50 with a strike price of $40. What are the maximum possible profit and loss for this position?
$
$
Maximum profit
2
Maximum loss
3
Explanation:
Note that the price of the put equals the revenue from writing the call, net initial cash outlays = $38.00
Position
S
T
<
35
35 ≤
S
T
≤ 40
40 <
S
T
Buy stock
S
T
S
T
S
T
Write call ($40)
0
0
40 −
S
T
Buy put ($35)
35 −
S
T
0
0
Total
$ 35
S
T
$ 40
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
7.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year for tax reasons. If you continue to hold the shares until
January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January call options with a strike price of
$45 are selling at $2, and January puts with a strike price of $35 are selling at $3. Assume that you hedge the entire 5,000 shares of stock.
Required:
a.
What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at $30?
b.
What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at $40?
c.
What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at $50?
$
$
$
a. Portfolio Value
170,000
b. Portfolio Value
195,000
c. Portfolio Value
220,000
Explanation:
For $5,000 initial outlay, buy 5,000 puts, write 5,000 calls:
Position
S
T
= $30
S
T
= $40
S
T
= $50
Stock portfolio
$ 150,000
$ 200,000
$ 250,000
Write call (
X
= $45)
0
0
−$ 25,000
Buy put (
X
= $35)
$ 25,000
0
0
Initial outlay
−$ 5,000
−$ 5,000
−$ 5,000
Portfolio value
$ 170,000
$ 195,000
$ 220,000
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
8.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Assume a stock has a value of $100. The stock is expected to pay a dividend of $2 per share at year-end. An at-the-money European-style put option with one-year expiration sells for $7. If the annual interest rate is 5%, what
must be the price of a 1-year at-the-money European call option on the stock?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
$
Call option
9.86
Explanation:
The price of the call is $9.86. Using put call parity, solve for the call option’s price:
C
=
S
0
−
PV
(
X
)
− PV
(Dividends) +
P
= $100 −
($100 ÷ (1.05)) − ($2 ÷ (1.05)) + $7 = $9.86
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
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9.
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points
Problems?
Adjust credit
for all students.
You buy a share of stock, write a 1-year call option with X = $10, and buy a 1-year put option with X = $10. Your net outlay to establish the entire portfolio is $9.50.
Required:
a.
What is the payoff of your portfolio?
b.
What must be the risk-free interest rate? The stock pays no dividends.
Note: Round your answer to 2 decimal places.
a. Payoff
10
b. Risk-free rate
5.26
%
Explanation:
a.
The following payoff table shows that the portfolio is riskless with time-
T
value equal to $10:
Position
S
T
≤ 10
S
T
> 10
Buy stock
S
T
S
T
Write call,
X
= $ 10
0
−(S
T
− 10)
Buy put,
X
= $ 10
10 − S
T
0
Total
10
10
b.
Therefore, the risk-free rate is: ($10.00 ÷ $9.50) − 1 = 0.0526 = 5.26%
Worksheet
Difficulty: 2 Intermediate
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
10.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Netflux is selling for $100 a share. A Netflux call option with one month until expiration and an exercise price of $105 sells for $2 while a put with the same strike and expiration sells for $6.94.
Required:
a.
What must be the market price of a zero-coupon bond with face value $105 and 1-month maturity?
Note: Round your answer to 2 decimal places.
b.
What is the risk-free interest rate expressed as an effective annual yield?
Note: Round your answer to 1 decimal place.
$
a. Market price
104.94
b. Risk-free interest rate
0.7
%
Explanation:
a.
According to put-call parity (assuming no dividends), the present value of a payment of $105 can be calculated using the options with one month expiration and exercise price of $105. Annualizing generates a risk-free rate of
0.7%:
PV(
X
) =
S
0
+
P
− C
PV($105) = $100 + $6.94 − $2 = $104.94
b.
Effective Annual Yield (EAY):
Worksheet
Difficulty: 3 Challenge
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Problems - Algorithmic & Static
References
11.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Required:
a.
You have just purchased the options listed below. Based on the information given, indicate whether the option is in the money, out of the money, or at the money, whether you would exercise the option if it were expiring today,
what the dollar profit would be, and what the percentage return would be.
Note: Enter “0” if there is no profit or return from not exercising the option. Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places.
$
$
$
$
Company
Option
Strike
Today's Stock
Price
In/Out of the Money?
Premium
Exercise?
Profit
Return
ABC
Call
10
10.26
In the money
1.10 Yes
(0.84)
(76.36) %
ABC
Put
10
10.26
Out of the money
0.95 No
0.00
0.00 %
ABC
Call
25
23.93
Out of the money
1.05 No
0.00
0.00 %
ABC
Put
25
23.93
In the money
2.25 Yes
(1.18)
(52.44) %
b.
Now suppose that time has passed and the stocks’ prices have changed as indicated in the table below. Recalculate your answers to part a.
$
$
$
$
Company
Option
Strike
Today's Stock
Price
In/Out of the Money?
Premium
Exercise?
Profit
Return
ABC
Call
10.00
11.23
In the money
1.10 Yes
0.13
11.82 %
ABC
Put
10.00
11.23
Out of the money
0.95 No
0.00
0.00 %
ABC
Call
25.00
27.00
In the money
1.05 Yes
0.95
90.48 %
ABC
Put
25.00
27.00
Out of the money
2.25 No
0.00
0.00 %
Explanation:
Call options will be in the money if the current stock price is greater than the strike price. If the call option is in the money you will always exercise the option. The profit on the option will be the difference between the stock price
and the strike price less the premium paid. Finally, the total return will be profit divided by the premium paid for the option.
Call options are out of the money if the stock price is less than the strike price which will then not be exercised and yield no profit or return.
Put options will be in the money if the current stock price is less than the strike price. If the put option is in the money you will always exercise the option. The profit on the option will be the difference between the strike price and
the stock price less the premium paid. Finally, the total return will be the profit divided by the premium paid for the option.
Put options are out of the money if the stock price is more than the strike price which will then not be exercised and yield no profit or return.
a.
Company
Option
Strike
Today's Stock Price
In/Out of the Money?
Premium
Exercise?
Profit
Return
ABC
Call
10
$10.26
In the money
1.10
Yes
−0.84
−76.36%
ABC
Put
10
$10.26
Out of the money
0.95
No
0.00
0.00%
ABC
Call
25
$23.93
Out of the money
1.05
No
0.00
0.00%
ABC
Put
25
$23.93
In the money
2.25
Yes
−1.18
−52.44%
b.
Company
Option
Strike
Today's Stock Price
In/Out of the Money?
Premium
Exercise?
Profit
Return
ABC
Call
10
$11.23
In the money
1.10
Yes
0.13
11.82%
ABC
Put
10
$11.23
Out of the money
0.95
No
0.00
0.00%
ABC
Call
25
$27.00
Out of the money
1.05
No
0.95
90.48%
ABC
Put
25
$27.00
In the money
2.25
Yes
0.00
0.00%
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
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12.
Award:
10.00
points
Problems?
Adjust credit
for all students.
The table below contains information for an XRAY, Incorporated call option. XRAY common stock is currently selling for $39.00.
Expiration
Strike
Last
Volume
Open Interest
November
16.00
3.00
2,156
11,579
Required:
a.
Is the option in the money?
Yes
No
b.
What is the profit on this position?
Note: Round your answer to 2 decimal places.
$
Profit
23.00
c.
Suppose that on the expiration date the stock’s price is $14.00. Will you exercise the call option?
Yes
No
Explanation:
a.
A call option is in the money when the current market price of the stock is above the strike price of the call. In this case, the selling price of $39.00 is greater than the strike price of $16.00; therefore, the option is in the money.
b.
The profit on the position will be the difference between the selling price and the strike price when the option is exercised. In this case, the profit will be $39.00 − $16.00 = 23.00.
c.
If at expiration the stock price is $14.00, it is less than the strike price and you will therefore not exercise the option. The option will expire worthless.
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
13.
Award:
10.00
points
Problems?
Adjust credit
for all students.
One month ago you purchased a put option on the S&P500 Index with an exercise price of $900.00. Today is the expiration date, and the index is at $896.46.
Required:
a.
Will you exercise the option?
Yes
No
b.
What will be your profit?
Note: Enter “0” if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.
$
Profit
3.54
Explanation:
a.
You will exercise the put option if the current value of the index is less than the exercise price. You will not exercise if the index value is greater than the exercise price.
b.
If the option is exercised, the profit will be the difference between the current value of the index and the exercise price.
Profit = $900.00 − $896.46 = $3.54
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
14.
Award:
10.00
points
Problems?
Adjust credit
for all students.
Several months ago you purchased a call option on a crude oil futures contract with an exercise price of $6,000.00. Today is the expiration date, and the futures price is $6,260.00.
Required:
a.
Will you exercise the option?
Yes
No
b.
What will be your profit?
Note: Enter “0” if there is no profit or return from not exercising the option. Round your answer to 2 decimal places.
$
Profit
260.00
Explanation:
a.
You will exercise the call option on the futures contract if the futures price is greater than the exercise price. The option will not be exercised if the futures price is less than the exercise price, and the option will expire
worthless.
b.
If the option on the futures contract is exercised, the profit will be the difference between the futures price and the exercise price.
Profit = $6,260.00 − $6,000.00 = $260.00
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
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Suppose that you purchased a conventional call option on growth in Non-Farm Payrolls (NFP) with an exercise price of 207,500 jobs. The NFP conventional contract pays out $115 for every job created in excess of the exercise
price.
Required:
a.
What is the value of the option if job growth is 194,500?
Note: Round your answer to the nearest dollar.
$
Option value
0
b.
What is the value of the option if job growth is 215,000?
Note: Round your answer to the nearest dollar.
$
Option value
862,500
Explanation:
a.
The value of the call option on the contract is $0 since the current job growth of 194,500 is less than the 207,500 job strike price.
b.
The call option will be exercised because 215,000 is greater than 207,500. The “profit” is 862,500 jobs. The value of the option will be the $115 for each of 7,500 jobs or $862,500 = ($115 × 7,500).
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
16.
Award:
10.00
points
Problems?
Adjust credit
for all students.
On February 1, the put/call ratio was 0.645. On April 1, there are 193 put options and 256 call options outstanding on a stock. Calculate the put/call ratio for April 1.
Note: Round your answer to 4 decimal places.
Put/call ratio
0.7539
Explanation:
The put/call ratio on April 1 equals 193 ÷ 256 = 0.7539. A rising put/call ratio is open to interpretation. Puts are purchased in anticipation of falling prices so some investors consider an increased put/call ratio bearish. These
investors would be likely to sell when the ratio is 0.75. Others, called contrarians, believe that an increase in the put/call ratio indicates that the market is undervalued and that it would be a good time to buy. They expect that
prices would rise soon to get to proper valuation levels.
Worksheet
Difficulty: 1 Basic
Source: Investments (Bodie, 13e, ISBN 1266836322) > Chapter 20: Options Markets: Introduction > Chapter 20 Additional Algorithmic Problems
References
1.
Award:
10.00 points
2.
Award:
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3.
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4.
Award:
10.00 points
The price that the buyer of a call option pays to acquire the option is called the:
strike price.
exercise price.
execution price.
acquisition price.
premium.
The price that the buyer of a call option pays to acquire the option is called the premium.
References
Multiple Choice
Difficulty: 1 Basic
The price that the writer of a call option receives to sell the option is called the:
strike price.
exercise price.
execution price.
acquisition price.
premium.
The price that the writer of a call option receives to sell the option is called the premium.
References
Multiple Choice
Difficulty: 1 Basic
The price that the buyer of a put option pays to acquire the option is called the:
strike price.
exercise price.
execution price.
acquisition price.
premium.
The price that the buyer of a put option pays to acquire the option is called the premium.
References
Multiple Choice
Difficulty: 1 Basic
The price that the writer of a put option receives to sell the option is called the:
premium.
exercise price.
execution price.
acquisition price.
strike price.
The price that the writer of a put option receives to sell the option is called the premium.
References
Multiple Choice
Difficulty: 1 Basic
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5.
Award:
10.00 points
6.
Award:
10.00 points
7.
Award:
10.00 points
8.
Award:
10.00 points
The price that the buyer of a call option pays for the underlying asset if she executes her option is called the:
strike price, only.
exercise price, only.
execution price, only.
strike price or execution price.
strike price or exercise price.
The price that the buyer of a call option pays for the underlying asset if she executes her option is strike price or exercise price.
References
Multiple Choice
Difficulty: 1 Basic
The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the:
strike price, only.
exercise price, only.
execution price, only.
strike price or exercise price.
strike price or execution price.
The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the strike price or exercise price.
References
Multiple Choice
Difficulty: 1 Basic
The price that the buyer of a put option receives for the underlying asset if she executes her option is called the:
strike price, only.
exercise price, only.
execution price, only.
strike price or execution price.
strike price or exercise price.
The price that the buyer of a put option receives for the underlying asset if she executes her option is called the strike price or exercise price.
References
Multiple Choice
Difficulty: 1 Basic
The price that the writer of a put option receives for the underlying asset if the option is exercised is called the:
strike price, only.
exercise price, only.
execution price, only.
strike price or exercise price.
None of the options are correct.
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.
References
Multiple Choice
Difficulty: 1 Basic
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9.
Award:
10.00 points
10.
Award:
10.00 points
11.
Award:
10.00 points
12.
Award:
10.00 points
An American call option allows the buyer to:
sell the underlying asset at the exercise price on or before the expiration date, only.
buy the underlying asset at the exercise price on or before the expiration date, only.
sell the option in the open market prior to expiration, only.
sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.
buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.
An American call option may be exercised (allowing the holder to buy the underlying asset) on or before expiration; the option contract also may be sold prior to expiration.
References
Multiple Choice
Difficulty: 1 Basic
A European call option allows the buyer to:
sell the underlying asset at the exercise price on the expiration date, only.
buy the underlying asset at the exercise price on or before the expiration date, only.
sell the option in the open market prior to expiration, only.
buy the underlying asset at the exercise price on the expiration date, only.
sell the option in the open market prior to expiration and buy the underlying asset at the exercise price on the expiration date.
A European call option may be exercised (allowing the holder to buy the underlying asset) on the expiration date; the option contract also may be sold prior to expiration.
References
Multiple Choice
Difficulty: 1 Basic
An American put option allows the holder to:
buy the underlying asset at the strike price on or before the expiration date.
sell the underlying asset at the strike price on or before the expiration date.
potentially benefit from a stock price increase.
sell the underlying asset at the strike price on or before the expiration date and potentially benefit from a stock price increase.
buy the underlying asset at the strike price on or before the expiration date and potentially benefit from a stock price increase.
An American put option allows the buyer to sell the underlying asset at the strike price on or before the expiration date.
References
Multiple Choice
Difficulty: 1 Basic
A European put option allows the holder to:
buy the underlying asset at the strike price on or before the expiration date.
sell the underlying asset at the strike price on or before the expiration date.
potentially benefit from a stock price increase.
sell the underlying asset at the strike price on the expiration date.
potentially benefit from a stock price increase and sell the underlying asset at the strike price on the expiration date.
A European put option allows the buyer to sell the underlying asset at the strike price only on the expiration date. The put option also allows the investor to benefit from an expected stock price decrease while risking only the
amount invested in the contract.
References
Multiple Choice
Difficulty: 1 Basic
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13.
Award:
10.00 points
14.
Award:
10.00 points
15.
Award:
10.00 points
16.
Award:
10.00 points
An American put option can be exercised:
any time on or before the expiration date.
only on the expiration date.
any time in the indefinite future.
only after dividends are paid.
None of the options are correct.
American options can be exercised on or before expiration date.
References
Multiple Choice
Difficulty: 1 Basic
An American call option can be exercised:
any time on or before the expiration date.
only on the expiration date.
any time in the indefinite future.
only after dividends are paid.
None of the options are correct.
American options can be exercised on or before expiration date.
References
Multiple Choice
Difficulty: 1 Basic
A European call option can be exercised:
any time in the future.
only on the expiration date.
if the price of the underlying asset declines below the exercise price.
immediately after dividends are paid.
None of the options are correct.
European options can be exercised at expiration only.
References
Multiple Choice
Difficulty: 1 Basic
A European put option can be exercised:
any time in the future.
only on the expiration date.
if the price of the underlying asset declines below the exercise price.
immediately after dividends are paid.
None of the options are correct.
European options can be exercised at expiration only.
References
Multiple Choice
Difficulty: 1 Basic
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18.
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19.
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20.
Award:
10.00 points
To adjust for stock splits:
the exercise price of the option is reduced by the factor of the split, and the number of options held is increased by that factor.
the exercise price of the option is increased by the factor of the split, and the number of options held is reduced by that factor.
the exercise price of the option is reduced by the factor of the split, and the number of options held is reduced by that factor.
the exercise price of the option is increased by the factor of the split, and the number of options held is increased by that factor.
None of the options are correct.
To adjust for stock splits the exercise price of the option is reduced by the factor of the split and the number of options held is increased by that factor.
References
Multiple Choice
Difficulty: 1 Basic
All else equal, call option values are lower:
in the month of May, only.
for low dividend-payout policies, only.
for high dividend-payout policies, only.
in the month of May and for low dividend-payout policies.
in the month of May and for high dividend-payout policies.
All else equal, call option values are lower for high dividend payout policies.
References
Multiple Choice
Difficulty: 1 Basic
All else equal, call option values are higher:
in the month of May, only.
for low dividend-payout policies, only.
for high dividend-payout policies, only.
in the month of May and for low dividend-payout policies.
in the month of May and for high dividend-payout policies.
All else equal, call option values are higher for low dividend payout policies.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of COCA COLA stock is $50. If a call option on this stock has a strike price of $45, the call:
is out of the money, only.
is in the money, only.
sells for a higher price than if the market price of COCA COLA stock is $40, only.
is out of the money and sells for a higher price than if the market price of COCA COLA stock is $40.
is in the money and sells for a higher price than if the market price of COCA COLA stock is $40.
If the strike price on a call option is less than the market price, the option is in the money and sells for more than an out of the money option.
References
Multiple Choice
Difficulty: 1 Basic
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21.
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10.00 points
22.
Award:
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23.
Award:
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24.
Award:
10.00 points
The current market price of a share of CSCO stock is $75. If a call option on this stock has a strike price of $70, the call:
is out of the money, only.
is in the money, only.
sells for a higher price than if the market price of CSCO stock is $70, only.
is out of the money and sells for a higher price than if the market price of CSCO stock is $70.
is in the money and sells for a higher price than if the market price of CSCO stock is $70.
If the strike price on a call option is less than the market price, the option is in the money and sells for more than an at the money option.
References
Multiple Choice
Difficulty: 1 Basic
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:
is out of the money, only.
is in the money, only.
sells for a higher price than if the market price of CSCO stock is $21, only.
is out of the money and sells for a higher price than if the market price of CSCO stock is $21.
is in the money and sells for a higher price than if the market price of CSCO stock is $21.
If the strike price on a call option is less than the market price, the option is in the money and sells for more than a less in the money option.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of Disney stock is $60. If a call option on this stock has a strike price of $65, the call:
is out of the money, only.
is in the money, only.
can be exercised profitably, only.
is out of the money and can be exercised profitably.
is in the money and can be exercised profitably.
If the strike price on a call option is more than the market price, the option is out of the money and cannot be exercised profitably.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of IBM stock is $76. If a call option on this stock has a strike price of $76, the call:
is out of the money.
is in the money.
is at the money.
is worthless.
None of the options are correct.
If the strike price on a call option is equal to the market price, the option is at the money.
References
Multiple Choice
Difficulty: 1 Basic
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25.
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10.00 points
26.
Award:
10.00 points
27.
Award:
10.00 points
28.
Award:
10.00 points
The current market price of a share of MSI stock is $24. If a call option on this stock has a strike price of $24, the call:
is out of the money.
is in the money.
is at the money.
is worthless.
None of the options are correct.
If the strike price on a call option is equal to the market price, the option is at the money.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of ONB stock is $195. If a call option on this stock has a strike price of $195, the call:
is out of the money.
is in the money.
is at the money.
is worthless.
None of the options are correct.
If the strike price on a call option is equal to the market price, the option is at the money.
References
Multiple Choice
Difficulty: 1 Basic
A put option on a stock is said to be out of the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
An out of the money put option gives the owner the right to sell the shares for less than market price.
References
Multiple Choice
Difficulty: 1 Basic
A put option on a stock is said to be in the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
An in the money put option gives the owner the right to sell the shares for more than market price.
References
Multiple Choice
Difficulty: 1 Basic
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29.
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10.00 points
30.
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31.
Award:
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32.
Award:
10.00 points
A put option on a stock is said to be at the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
A put option on a stock is said to be at the money if the exercise price is equal to the stock price.
References
Multiple Choice
Difficulty: 1 Basic
A call option on a stock is said to be out of the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
An out of the money call option gives the owner the right to buy the shares for more than market price.
References
Multiple Choice
Difficulty: 1 Basic
A call option on a stock is said to be in the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
An in the money call option gives the owner the right to buy the shares for less than market price.
References
Multiple Choice
Difficulty: 1 Basic
A call option on a stock is said to be at the money if:
the exercise price is higher than the stock price.
the exercise price is less than the stock price.
the exercise price is equal to the stock price.
the price of the put is higher than the price of the call.
the price of the call is higher than the price of the put.
A call option on a stock is said to be at the money if the exercise price is equal to the stock price.
References
Multiple Choice
Difficulty: 1 Basic
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33.
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34.
Award:
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35.
Award:
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36.
Award:
10.00 points
The current market price of a share of LLY stock is $60. If a put option on this stock has a strike price of $55, the put:
is in the money, only.
is out of the money, only.
sells for a lower price than if the market price of LLY stock is $50, only.
is in the money and sells for a lower price than if the market price of LLY stock is $50.
is out of the money and sells for a lower price than if the market price of LLY stock is $50.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an in the money option.
References
Multiple Choice
Difficulty: 1 Basic
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:
is in the money, only.
is out of the money, only.
sells for a lower price than if the market price of the stock is $75, only.
is in the money and sells for a lower price than if the market price of the stock is $75.
is out of the money and sells for a lower price than if the market price of the stock is $75.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an at the money option.
References
Multiple Choice
Difficulty: 1 Basic
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:
is out of the money, only.
is in the money, only.
sells for a higher price than if the strike price of the put option was $23, only.
is out of the money and sells for a higher price than if the strike price of the put option was $23.
is in the money and sells for a higher price than if the strike price of the put option was $23.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an in the money option.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of MSI stock is $15. If a put option on this stock has a strike price of $20, the put:
is out of the money, only.
is in the money, only.
can be exercised profitably, only.
is out of the money and can be exercised profitably.
is in the money and can be exercised profitably.
If the strike price on a put option is more than the market price, the option is in the money.
References
Multiple Choice
Difficulty: 1 Basic
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38.
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39.
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40.
Award:
10.00 points
The current market price of a share of TSCO stock is $75. If a put option on this stock has a strike price of $79, the put:
is out of the money, only.
is in the money, only.
can be exercised profitably, only.
is out of the money and can be exercised profitably.
is in the money and can be exercised profitably.
If the strike price on a put option is more than the market price, the option is in the money and can be profitably exercised.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of COCA COLA stock is $50. If a put option on this stock has a strike price of $45, the put:
is out of the money, only.
is in the money, only.
sells for a lower price than if the market price of COCA COLA stock is $40, only.
is out of the money and sells for a lower price than if the market price of COCA COLA stock is $40.
is in the money and sells for a lower price than if the market price of COCA COLA stock is $40.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an in the money option.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of CSCO stock is $75. If a put option on this stock has a strike price of $70, the put:
is out of the money, only.
is in the money, only.
sells for a higher price than if the market price of CSCO stock is $70, only.
is out of the money and sells for a higher price than if the market price of CSCO stock is $70.
is in the money and sells for a higher price than if the market price of CSCO stock is $70.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an at the money option.
References
Multiple Choice
Difficulty: 1 Basic
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:
is out of the money, only.
is in the money, only.
sells for a higher price than if the strike price of the put option was $25, only.
is out of the money and sells for a higher price than if the strike price of the put option was $25.
is in the money and sells for a higher price than if the strike price of the put option was $25.
If the strike price on a put option is less than the market price, the option is out of the money and sells for less than an in the money option.
References
Multiple Choice
Difficulty: 1 Basic
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41.
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42.
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43.
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44.
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The current market price of a share of Disney stock is $60. If a put option on this stock has a strike price of $65, the put:
is out of the money, only.
is in the money, only.
can be exercised profitably, only.
is out of the money and can be exercised profitably.
is in the money and can be exercised profitably.
If the strike price on a put option is more than the market price, the option is in the money and can be exercise profitably.
References
Multiple Choice
Difficulty: 1 Basic
The current market price of a share of IBM stock is $76. If a put option on this stock has a strike price of $80, the put:
is out of the money, only.
is in the money, only.
can be exercised profitably, only.
is out of the money and can be exercised profitably.
is in the money and can be exercised profitably.
If the strike price on a put option is less than the market price, the option is in the money and can be profitably exercised.
References
Multiple Choice
Difficulty: 1 Basic
Lookback options have payoffs that:
depend in part on the minimum or maximum price of the underlying asset during the life of the option.
only depend on the minimum price of the underlying asset during the life of the option.
only depend on the maximum price of the underlying asset during the life of the option.
are known in advance.
None of the options are correct.
Lookback options have payoffs that depend in part on the minimum or maximum price of the underlying asset during the life of the option.
References
Multiple Choice
Difficulty: 1 Basic
Barrier options have payoffs that:
have payoffs that only depend on the minimum price of the underlying asset during the life of the option.
depend both on the asset's price at expiration and on whether the underlying asset's price has crossed through some barrier.
are known in advance.
have payoffs that only depend on the maximum price of the underlying asset during the life of the option.
None of the options are correct.
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.
References
Multiple Choice
Difficulty: 1 Basic
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46.
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47.
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48.
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Currency-translated options have:
only asset prices denoted in a foreign currency.
only exercise prices denoted in a foreign currency.
payoffs that only depend on the maximum price of the underlying asset during the life of the option.
either asset or exercise prices denoted in a foreign currency.
None of the options are correct.
Currency-translated options have either asset or exercise prices denoted in a foreign currency.
References
Multiple Choice
Difficulty: 1 Basic
Binary options:
are based on two possible outcomes—yes or no.
may make a payoff of a fixed amount if a specified event happens.
may make a payoff of a fixed amount if a specified event does not happen.
may make a payoff of a fixed amount if a specified event happens and are based on two possible outcomes—yes or no.
All of the options are correct.
Binary options are based on two possible outcomes—yes or no, may make a payoff of a fixed amount if a specified event happens, and may make a payoff of a fixed amount if a specified event does not happen.
References
Multiple Choice
Difficulty: 1 Basic
The maximum loss a buyer of a stock call option can suffer is equal to:
the strike price minus the stock price.
the stock price minus the value of the call.
the call premium.
the stock price.
None of the options are correct.
If an option expires worthless, all the buyer has lost is the price of the contract (premium).
References
Multiple Choice
Difficulty: 1 Basic
The maximum loss a buyer of a stock put option can suffer is equal to:
the strike price minus the stock price.
the stock price minus the value of the call.
the put premium.
the stock price.
None of the options are correct.
If an option expires worthless, all the buyer has lost is the price of the contract (premium).
References
Multiple Choice
Difficulty: 1 Basic
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The lower bound on the market price of a convertible bond is:
its straight-bond value.
its crooked-bond value.
its conversion value.
its straight-bond value and its conversion value.
None of the options are correct.
The lower bound on the market price of a convertible bond is its straight bond value or its conversion value.
References
Multiple Choice
Difficulty: 1 Basic
The potential loss for a writer of a naked call option on a stock is:
limited.
unlimited.
increasing when the stock price is decreasing.
equal to the call premium.
None of the options are correct.
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.
References
Multiple Choice
Difficulty: 2 Intermediate
You write one LLY February 70 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?
$65
$75
$5
$70
None of the options are correct.
$70
−
$5 = $65
References
Multiple Choice
Difficulty: 1 Basic
You purchase one LLY 75 call option for a premium of $3. Ignoring transaction costs, the break-even price of the position is:
$75.
$72.
$3.
$78.
None of the options are correct.
$75 + $3 = $78
References
Multiple Choice
Difficulty: 1 Basic
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53.
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54.
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55.
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You write one COCA COLA February 50 put for a premium of $5. Ignoring transactions costs, what is the break-even price of this position?
$50
$55
$45
$40
None of the options are correct.
$50
−
$5 = $45
References
Multiple Choice
Difficulty: 1 Basic
You purchase one ONB 200 call option for a premium of $6. Ignoring transaction costs, the break-even price of the position is:
$194.
$228.
$200.
$211.
None of the options are correct.
$200 + $6 = $206
References
Multiple Choice
Difficulty: 1 Basic
Call options on ONB-listed stock options are:
issued by ONB Corporation, only.
created by investors, only.
traded on various exchanges, only.
issued by ONB Corporation and traded on various exchanges.
created by investors and traded on various exchanges.
Options are merely contracts between buyer and seller and sold on various organized exchanges and the over-the-counter market.
References
Multiple Choice
Difficulty: 2 Intermediate
Buyers of call options _________ required to post margin deposits, and sellers of put options _________ required to post margin deposits.
are; are not
are; are
are not; are
are not; are not
are always; are sometimes
Buyers of call options pose no risk as they have no commitment. If the option expires worthless, the buyer merely loses the option premium. If the option is in the money at expiration and the buyer lacks funds, there is no
requirement to exercise. The seller of a put option is committed to selling the stock at the exercise price. If the seller of the option does not own the underlying stock, the seller must go into the open market and buy the stock in
order to be able to sell the stock to the buyer of the contract.
References
Multiple Choice
Difficulty: 2 Intermediate
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59.
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60.
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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 _________.
increase; increase
decrease; increase
increase; decrease
decrease; decrease
Cannot tell without further information
The buyer of the put option hopes the price will fall to exercise the option and sell the stock at a price higher than the market price. Likewise, the seller of the call option hopes the price will decrease so the option will expire
worthless.
References
Multiple Choice
Difficulty: 2 Intermediate
The Option Clearing Corporation is owned by:
the Federal Reserve System.
the exchanges on which stock options are traded.
the major U.S. banks.
the Federal Deposit Insurance Corporation.
None of the options are correct.
The exchanges on which options are traded jointly own the Option Clearing Corporation in order to facilitate option trading.
References
Multiple Choice
Difficulty: 2 Intermediate
A covered call position is:
the simultaneous purchase of the call and the underlying asset.
the purchase of a share of stock with a simultaneous sale of a put on that stock.
the short sale of a share of stock with a simultaneous sale of a call on that stock.
the purchase of a share of stock with a simultaneous sale of a call on that stock.
the simultaneous purchase of a call and sale of a put on the same stock.
Writing a covered call is a very safe strategy, as the writer owns the underlying stock. The only risk to the writer is that the stock will be called away, thus limiting the upside potential.
References
Multiple Choice
Difficulty: 2 Intermediate
According to the put-call parity theorem, the value of a European put option on a non-dividend paying stock is equal to:
the call value plus the present value of the exercise price plus the stock price.
the call value plus the present value of the exercise price minus the stock price.
the present value of the stock price minus the exercise price minus the call price.
the present value of the stock price plus the exercise price minus the call price.
None of the options are correct.
P
0
=
C
0
−
S
0
+
PV
(
X
) +
PV
(Dividends)
=
C
0
−
S
0
+
PV
(
X
)
References
Multiple Choice
Difficulty: 3 Challenge
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A protective put strategy is:
a long put plus a long position in the underlying asset.
a long put plus a long call on the same underlying asset.
a long call plus a short put on the same underlying asset.
a long put plus a short call on the same underlying asset.
None of the options are correct.
If you invest in a stock and purchase a put option on the stock, you are guaranteed a payoff equal to the exercise price; thus the protection of the put.
References
Multiple Choice
Difficulty: 2 Intermediate
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:
increases to $504.
decreases to $490.
increases to $506.
decreases to $496.
None of the options are correct.
$500 + $5 = $505 (breakeven). The price of the stock must increase to above $505 for the option holder to earn a profit.
References
Multiple Choice
Difficulty: 2 Intermediate
Suppose the price of a share of ONB stock is $200. An April call option on ONB stock has a premium of $5 and an exercise price of $200. Ignoring commissions, the holder of the call option will earn a profit if the price of the share:
increases to $204.
decreases to $190.
increases to $206.
decreases to $196.
None of the options are correct.
$200 + $5 = $205 (breakeven). The price of the stock must increase to above $205 for the option holder to earn a profit.
References
Multiple Choice
Difficulty: 2 Intermediate
You purchased one Coca Cola March 50 call and sold one COCA COLA March 55 call. Your strategy is known as:
a long straddle.
a horizontal spread.
a money spread.
a short straddle.
None of the options are correct.
A money spread involves the purchase one option and the simultaneous sale of another with a different exercise price and same expiration date.
References
Multiple Choice
Difficulty: 2 Intermediate
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66.
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67.
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68.
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You purchased one Coca Cola March 50 put and sold one COCA COLA April 50 put. Your strategy is known as:
a vertical spread.
a straddle.
a time spread.
a collar.
None of the options are correct.
A time spread involves the simultaneous purchase and sale of options with different expiration dates, same exercise price.
References
Multiple Choice
Difficulty: 2 Intermediate
Before expiration, the time value of a call option is equal to:
zero.
the actual call price minus the intrinsic value of the call.
the intrinsic value of the call.
the actual call price plus the intrinsic value of the call.
None of the options are correct.
The difference between the actual call price and the intrinsic value is the time value of the option, which should not be confused with the time value of money. The option's time value is the difference between the option's price and
the value of the option were the option expiring immediately.
References
Multiple Choice
Difficulty: 2 Intermediate
Which of the following factors affect the price of a stock option?
The risk-free rate.
The riskiness of the stock.
The time to expiration.
The expected rate of return on the stock.
The risk-free rate, riskiness of the stock, and time to expiration.
The risk-free rate, riskiness of the stock, and time to expiration are directly related to the price of the option; the expected rate of return on the stock does not affect the price of the option.
References
Multiple Choice
Difficulty: 2 Intermediate
All of the following factors affect the price of a stock option
except:
the risk-free rate.
the riskiness of the stock.
the time to expiration.
the expected rate of return on the stock.
None of the options are correct.
The risk-free rate, riskiness of the stock, and time to expiration are directly related to the price of the option; the expected rate of return on the stock does not affect the price of the option.
References
Multiple Choice
Difficulty: 2 Intermediate
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The value of a stock put option is positively related to the following factors
except:
the time to expiration.
the strike price.
the stock price.
All of the options are correct.
None of the options are correct.
The time to expiration and strike price are positively related to the value of a put option; the stock price is inversely related to the value of the option.
References
Multiple Choice
Difficulty: 2 Intermediate
The value of a stock put option is positively related to:
the time to expiration, only.
the strike price, only.
the stock price, only.
the time to expiration and the strike price.
All of the options are correct.
The time to expiration and strike price are positively related to the value of a put option; the stock price is inversely related to the value of the option.
References
Multiple Choice
Difficulty: 2 Intermediate
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?
$4,800
$200
$5,000
$5,200
None of the options are correct.
50 × $100
−
$2 × 100 = $4,800 (if the stock falls to zero).
References
Multiple Choice
Difficulty: 2 Intermediate
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?
$7,000
$400
$7,400
$6,600
None of the options are correct.
70 × $100
−
$4 × 100 = $6,600 (if the stock falls to zero).
References
Multiple Choice
Difficulty: 2 Intermediate
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74.
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75.
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You purchase one ONB March 200 put contract for a put premium of $6. What is the maximum profit that you could gain from this strategy?
$20,000
$20,600
$19,400
$19,000
None of the options are correct.
200 × $100
−
$6 × 100 = $19,400 (if the stock falls to zero).
References
Multiple Choice
Difficulty: 2 Intermediate
The following Stock option price quotations were taken from the
Wall Street Journal
.
Microsoft (MSFT)
Underlying Price:
295.71
Expiration
Strike
Call
Put
1-October-2021
290
9.43
3.63
1-October-2021
300
3.60
7.82
1-October-2021
310
1.08
15.28
17-December-2021
290
17.25
11.72
17-December-2021
300
11.75
16.25
17-December-2021
310
7.62
22.05
The premium on one October 290 call contract is:
$9.43.
$3.63.
$943.00.
$58.00.
None of the options are correct.
$9.43 × 100 = $943
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.
References
Multiple Choice
Difficulty: 2 Intermediate
The following price quotations on Microsoft were taken from the
Wall Street Journal
.
Microsoft (MSFT)
Underlying Price:
295.71
Expiration
Strike
Call
Put
1-October-2021
290
9.43
3.63
1-October-2021
300
3.60
7.82
1-October-2021
310
1.08
15.28
17-December-2021
290
17.25
11.72
17-December-2021
300
11.75
16.25
17-December-2021
310
7.62
22.05
The premium on one Microsoft December 310 put contract is:
$22.05.
$7.62.
$2,205.
$762.
None of the options are correct.
$22.05 × 100 = $2,205. 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.
References
Multiple Choice
Difficulty: 2 Intermediate
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76.
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77.
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78.
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79.
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10.00 points
The following price quotations on Microsoft were taken from the
Wall Street Journal.
Microsoft (MSFT)
Underlying Price:
295.71
Expiration
Strike
Call
Put
1-October-2021
290
9.43
3.63
1-October-2021
300
3.60
7.82
1-October-2021
310
1.08
15.28
17-December-2021
290
17.25
11.72
17-December-2021
300
11.75
16.25
17-December-2021
310
7.62
22.05
The premium on one Microsoft December 290 put contract is:
$8.875.
$1,172.00.
$412.50.
$158.00.
None of the options are correct.
$11.72 × 100 = $1,172.
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.
References
Multiple Choice
Difficulty: 2 Intermediate
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum potential profit of your strategy is _________, if both options are exercised.
$600
$500
$200
$300
$100
If price is $105
→
Payoff = ($105
−
$100) × 100 = $500
Profit = $500 + ($2
−
$5) × 100 = $200
References
Multiple Choice
Difficulty: 3 Challenge
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. If, at expiration, the price of a share of WFM stock is $103, your profit would be:
$500.
$300.
zero.
$200.
None of the options are correct.
If price is $103
Payoff
100
= ($103 − $100) × 100 = $300
Profit = $300 + ($2
−
$5) × 100 = $0
References
Multiple Choice
Difficulty: 3 Challenge
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum loss you could suffer from your strategy is:
$200.
$300.
zero.
$500.
None of the options are correct.
($2
−
$5) × 100 =
−
$300
References
Multiple Choice
Difficulty: 3 Challenge
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Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. What is the lowest stock price at which you can break even?
$101
$102
$103
$104
None of the options are correct.
x
= $103.
References
Multiple Choice
Difficulty: 3 Challenge
You buy one Loews June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
Your strategy is called:
a short straddle.
a long straddle.
a horizontal straddle.
a covered call.
None of the options are correct.
Buying both a put and a call, each with the same expiration date and exercise price, is a long straddle.
References
Multiple Choice
Difficulty: 2 Intermediate
You buy one Loews June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
Your maximum loss from this position could be:
$500.
$300.
$800.
$200.
None of the options are correct.
(
−
$3
−
$5) × 100 =
−
$800
References
Multiple Choice
Difficulty: 2 Intermediate
You buy one Loews June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3.
At expiration, you break even if the stock price is equal to:
$52.
$60.
$68.
either $52 or $68.
None of the options are correct.
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.
References
Multiple Choice
Difficulty: 3 Challenge
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The put-call parity theorem:
represents the proper relationship between put and call prices.
allows for arbitrage opportunities if violated.
may be violated by small amounts, but not enough to earn arbitrage profits, once transaction costs are considered.
All of the options are correct.
None of the options are correct.
The put-call parity relationship states the relationship between put and call prices, which, if violated, allows for arbitrage profits; however, these profits may disappear once transaction costs are considered.
References
Multiple Choice
Difficulty: 2 Intermediate
Some more "traditional" assets have option-like features; some of these instruments include:
callable bonds, only.
convertible bonds, only.
warrants, only.
callable bonds and convertible bonds.
All of the options are correct.
All of the above-mentioned instruments have option like features.
References
Multiple Choice
Difficulty: 1 Basic
Financial engineering:
is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security, only.
primarily takes place for the institutional investor, only.
primarily takes places for the individual investor, only.
is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes place for the institutional investor.
is the custom designing of securities or portfolios with desired patterns of exposure to the price of the underlying security and primarily takes places for the individual investor.
Financial engineering is the customization of new securities, primarily for institutional investors.
References
Multiple Choice
Difficulty: 1 Basic
A collar with a net outlay of approximately zero is an options strategy that:
combines a put and a call to lock in a price range for a security, only.
uses the gains from sale of a call to purchase a put, only.
uses the gains from sale of a put to purchase a call, only.
combines a put and a call to lock in a price range for a security and uses the gains from sale of a call to purchase a put.
combines a put and a call to lock in a price range for a security and uses the gains from sale of a put to purchase a call.
The collar brackets the value of a portfolio between two bounds.
References
Multiple Choice
Difficulty: 1 Basic
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88.
Award:
10.00 points
89.
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90.
Award:
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91.
Award:
10.00 points
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?
$10.00
$12.12
$16.00
$11.98
$14.13
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $10 + $58 ÷ 1.055 − $53 = $11.98
References
Multiple Choice
Difficulty: 3 Challenge
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?
$9.00
$12.89
$16.00
$18.72
$15.60
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $9 + ($55 ÷ 1.06) − $48 = $12.89
References
Multiple Choice
Difficulty: 3 Challenge
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?
$9.00
$12.89
$16.00
$18.72
$14.27
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $9 + ($45 ÷ 1.04) − $38 = $14.27
References
Multiple Choice
Difficulty: 3 Challenge
A callable bond should be priced the same as:
a convertible bond.
a straight bond plus a put option.
a straight bond plus a call option held by the issuing firm.
a straight bond plus warrants.
a straight bond plus a call option held by the bondholder.
A callable bond is the equivalent of a straight bond sale by the corporation and the concurrent issue of a call option by the bond buyer.
References
Multiple Choice
Difficulty: 2 Intermediate
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92.
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93.
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94.
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95.
Award:
10.00 points
Asian options differ from American and European options in that:
they are only sold in Asian financial markets.
they never expire.
their payoff is based on the average price of the underlying asset.
they are only sold in Asian financial markets and they never expire.
they are only sold in Asian financial markets and their payoff is based on the average price of the underlying asset.
Asian options have payoffs that depend on the average price of the underlying asset during some period of time.
References
Multiple Choice
Difficulty: 1 Basic
Trading in "exotic options" takes place primarily:
on the New York Stock Exchange.
in the over-the-counter market.
on the American Stock Exchange.
in the primary marketplace.
None of the options are correct.
There is an active over-the-counter market for exotic options.
References
Multiple Choice
Difficulty: 2 Intermediate
Consider a one-year maturity call option and a one-year put option on the same stock, both with strike 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?
$4.38
$5.60
$6.23
$12.26
None of the options are correct.
C
0
=
S
0
+
P
0
−
X
÷ (1 +
r
f
) = $48 + $1.50 − ($45 ÷ 1.04) = $6.23
References
Multiple Choice
Difficulty: 3 Challenge
Consider a one-year maturity call option and a one-year put option on the same stock, both with strike 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?
$17.50
$15.26
$10.36
$12.26
None of the options are correct.
C
0
=
S
0
+
P
0
−
X
÷ (1 +
r
f
) = $103 + $7.50 − ($100 ÷ 1.05) = $15.26
References
Multiple Choice
Difficulty: 3 Challenge
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96.
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97.
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98.
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99.
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Derivative securities are also called contingent claims because:
their owners may choose whether to exercise them.
a large contingent of investors holds them.
the writers may choose whether to exercise them.
their payoffs depend on the prices of other assets.
contingency management is used in adding them to portfolios.
The values of derivatives depend on the values of the underlying stock, commodity, index, etc.
References
Multiple Choice
Difficulty: 1 Basic
You purchased a call option for $3.45 17 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?
173.9%,
−
100%
73.9%,
−
100%
57.5%,
−
173.9%
73.9%, 57.5%
100%,
−
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 = 0.739 (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
−
100%.
References
Multiple Choice
Difficulty: 1 Basic
An option with an exercise price equal to the underlying asset's price is:
worthless.
in the money.
at the money.
out of the money.
theoretically impossible.
This is the definition of "at the money." The option has a market value and may increase in value if there are favorable price movements in the underlying asset before the expiration date.
References
Multiple Choice
Difficulty: 1 Basic
To the option holder, put options are worth _________ when the exercise price is higher; call options are worth _________ when the exercise price is higher.
more; more
more; less
less; more
less; less
It doesn't matter—they are too risky to be included in a reasonable person's portfolio.
The holder of the put would prefer to sell the asset to the writer at a higher exercise price. The holder of the call would prefer to buy the asset from the writer at a lower exercise price.
References
Multiple Choice
Difficulty: 1 Basic
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100.
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101.
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102.
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103.
Award:
10.00 points
What happens to an option if the underlying stock has a 2-for-1 split?
There is no change in either the exercise price or in the number of options held.
The exercise price will adjust through normal market movements; the number of options will remain the same.
The exercise price would become one-half of what it was, and the number of options held would double.
The exercise price would double, and the number of options held would double.
There is no standard rule—each corporation has its own policy.
This is similar to what happens to the underlying stock.
References
Multiple Choice
Difficulty: 1 Basic
What happens to an option if the underlying stock has a 3-for-1 split?
There is no change in either the exercise price or in the number of options held.
The exercise price will adjust through normal market movements; the number of options will remain the same.
The exercise price would become one-third of what it was, and the number of options held would triple.
The exercise price would triple, and the number of options held would triple.
There is no standard rule—each corporation has its own policy.
This is similar to what happens to the underlying stock.
References
Multiple Choice
Difficulty: 1 Basic
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?
You will have to pay $1,680.
You will receive $1,720.
You will receive $1,680.
You will receive $4,000.
You will have to pay $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
1,720
−
1,680 = 40 times the $100 multiplier, or $4,000. In other words, you are implicitly buying the index for 1,680 and selling it to the call writer for 1,720.
References
Multiple Choice
Difficulty: 2 Intermediate
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,700, and the index is now at 1,760. What will happen when you exercise the option?
You will have to pay $6,000.
You will receive $6,000.
You will receive $1,700.
You will receive $1,760.
You will have to pay $7,000.
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
1,760
−
1,700 = 60 times the $100 multiplier, or $6,000. In other words, you are implicitly buying the index for 1,700 and selling it to the call writer for 1,760.
References
Multiple Choice
Difficulty: 2 Intermediate
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105.
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106.
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107.
Award:
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A stock is currently selling for $47. The price of a $50 strike call with a 6-month expiration is selling for $2.20. If the interest rate is 4%, what is the price of the put option?
$5.41
$4.23
$3.36
$2.26
None of the options are correct.
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $2.20 + $50 ÷ (1.04)
0.5
− $47 = $4.23
References
Multiple Choice
Difficulty: 3 Challenge
A stock is currently selling for $32. The price of a $30 strike call with a 6-month expiration is $3.10. If the interest rate is 3%, what is the price of the put option assuming no dividend is paid?
$0.66
$1.15
$1.36
$1.56
None of the options are correct.
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $3.10 + $30 ÷ (1.03)
0.5
− 32 − 0 = $0.66
References
Multiple Choice
Difficulty: 3 Challenge
A dividend paying stock is currently selling for $32. The price of a $30 strike call with a 6-month expiration is $3.10. If the interest rate is 3%, what is the price of the put option assuming the dividend is paid in 6 months and is
$0.50?
$0.66
$1.15
$1.36
$1.56
None of the options are correct.
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $3.10 + $30 ÷ (1.03)
0.5
− $32 + $0.50 ÷ (1.03)
0.5
= $1.15
References
Multiple Choice
Difficulty: 3 Challenge
A dividend paying stock is currently selling for $47. The price of a $50 strike call with a 6 month expiration is selling for $2.20. If the interest rate is 4%, what is the price of the put option assuming a dividend is paid in 6 months and
is $1.20?
$5.41
$4.23
$3.36
$2.26
None of the options are correct.
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $2.20 + $50 ÷ (1.04)
0.5
− $47 + $1.20 ÷ (1.04)
0.5
= $5.41
References
Multiple Choice
Difficulty: 3 Challenge
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108.
Award:
10.00 points
A dividend paying stock is currently selling for $96. The price of a $95 strike call with a 3-month expiration is selling for $2.15. If the interest rate is 3%, what is the price of the put option assuming a dividend is paid in 3 months and
is $0.80?
$4.41
$3.23
$2.36
$1.24
None of the options are correct.
C
0
+
X
÷ (1 +
r
f
) =
S
0
+
P
0
P
0
=
C
0
+
X
÷ (1 +
r
f
) −
S
0
= $2.15 + $95 ÷ (1.03)
0.25
− $96 + $0.80 ÷ (1.03)
0.25
= $1.24
References
Multiple Choice
Difficulty: 3 Challenge
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Related Questions
(2 points)
Results for this submission
Entered
9.6
The answer above is NOT correct.
Answer Preview
9.6
Find the annual simple interest rate of a loan, where $200 is borrowed and where $216 is repaid at the end of 9 months.
Annual simple interest rate =
%.
Preview My Answers
Submit Answers
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Page generated at 05/04/2024 at 02:49pm EDT
WeBWorK 1996-2022 | theme: math4-green | ww_version: 2.17 | pg_version 2.17 | The WeBWorK Project
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Use the information above to complete the missing values in the table below $2,500 invested 4% interest.
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Friendly's Quick Loans, Incorporated, offers you "$4.20 for $5.20 or I knock on your
door." This means you get $4.20 today and repay $5.20 when you get your paycheck in
one week (or else).
a. If you were brave enough to ask, what APR would Friendly's say you were paying?
(Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
b. What's the effective annual return Friendly's earns on this lending business? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
1,056.46 %
23.81 %
a. APR
b. EAR
4
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Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
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Please correct answer and don't use hand rating
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Abm (business math questions) can you help me?
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whats the answer to number 2?
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For each of the following, compute the future value: (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
[From instructor: After watching the hint video, please also scroll down to read the
alternative methods as well. Thank you!]
Present Value
$
2,000
8,252
71,355
178,796
Years
11
7
14
8
Interest Rate
13 %
9%
12 %
6 %
Future Value
arrow_forward
If a cell in an Excel spreadsheet uses the following formula to determine the future value of an investment:
=FV(0.0745/12, 12*30,-145)
How much money is being invested each month?
(Express your answer rounded correctly to the nearest cent!)
%$4
What is the APR?
(Express your answer correctly rounded to the nearest hundredth of a percent!)
%
If you haven't answered the question correctly in 3 attempts, you can get a hint.
arrow_forward
Determine the future value of the following single amounts
Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (EV of $1. PV of $1. EVA
of $1.PVA of $1. EVAD of $1 and PVAD of $1)
Invested Amount
15.000
20,000
30.000
50,000
1 S
3
234
$
4 S
1 =
ON
0%
12%
4%
n =
12
10
20
12
Future Value
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Please correct answer and don't use hand raiting
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can i have the answer for this?
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Suppose you want to have $300,000 for retirement in 20 years. Your account earns 10% interest. How much
would you need to deposit in the account each month?
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help please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all working
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Friendly’s Quick Loans, Inc., offers you “three for four or I knock on your door.” This means you get $3 today and repay $4 when you get your paycheck in one week (or else).
a.
If you were brave enough to ask, what APR would Friendly’s say you were paying? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.
What’s the effective annual return Friendly’s earns on this lending business? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Your business requests a 3-month loan for
$500,000. What will be the interest paid at the
end of the term if the business risk percentage is
assessed at 2.0% and LIBOR is at 2.1%?
interest paid = $[?]
Round to the nearest hundredth.
Enter
right 2003 - 2021 Acellus Corporation. All Rights Reserved.
OCT
14
MacBook
F1
F2
F3
FA
FS.
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Friendly's Quick Loans, Inc., offers you $6.00 today but you must repay $8.15 when you
get your paycheck in one week (or else).
a. What is the effective annual return Friendly's earns on this lending business? (Do not
round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g:, 32.16.)
b. If you were brave enough to ask, what APR would Friendly's say you were paying? (Do
not round intermediate calculations and enter your answer as a percent rounded to
2 decimal places, e.g., 32.16.)
Effective annual return
b. Annual percentage rate
a.
%
%
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Please only by financial calculator give steps and if possible output picture also
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Please explain how you got the answers with fill calculations. Thank you.
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Friendly’s Quick Loans, Inc., offers you $7.75 today but you must repay $9.85 when you get your paycheck in one week (or else).
a.
What is the effective annual return Friendly’s earns on this lending business? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.
If you were brave enough to ask, what APR would Friendly’s say you were paying? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Related Questions
- (2 points) Results for this submission Entered 9.6 The answer above is NOT correct. Answer Preview 9.6 Find the annual simple interest rate of a loan, where $200 is borrowed and where $216 is repaid at the end of 9 months. Annual simple interest rate = %. Preview My Answers Submit Answers Your score was recorded. You have attempted this problem 1 time. You received a score of 0% for this attempt. Your overall recorded score is 0%. You have unlimited attempts remaining. Page generated at 05/04/2024 at 02:49pm EDT WeBWorK 1996-2022 | theme: math4-green | ww_version: 2.17 | pg_version 2.17 | The WeBWorK Projectarrow_forwardUse the information above to complete the missing values in the table below $2,500 invested 4% interest.arrow_forwardFriendly's Quick Loans, Incorporated, offers you "$4.20 for $5.20 or I knock on your door." This means you get $4.20 today and repay $5.20 when you get your paycheck in one week (or else). a. If you were brave enough to ask, what APR would Friendly's say you were paying? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What's the effective annual return Friendly's earns on this lending business? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. 1,056.46 % 23.81 % a. APR b. EAR 4arrow_forward
- whats the answer to number 2?arrow_forwardFor each of the following, compute the future value: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) [From instructor: After watching the hint video, please also scroll down to read the alternative methods as well. Thank you!] Present Value $ 2,000 8,252 71,355 178,796 Years 11 7 14 8 Interest Rate 13 % 9% 12 % 6 % Future Valuearrow_forwardIf a cell in an Excel spreadsheet uses the following formula to determine the future value of an investment: =FV(0.0745/12, 12*30,-145) How much money is being invested each month? (Express your answer rounded correctly to the nearest cent!) %$4 What is the APR? (Express your answer correctly rounded to the nearest hundredth of a percent!) % If you haven't answered the question correctly in 3 attempts, you can get a hint.arrow_forward
- Determine the future value of the following single amounts Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (EV of $1. PV of $1. EVA of $1.PVA of $1. EVAD of $1 and PVAD of $1) Invested Amount 15.000 20,000 30.000 50,000 1 S 3 234 $ 4 S 1 = ON 0% 12% 4% n = 12 10 20 12 Future Valuearrow_forwardPlease correct answer and don't use hand raitingarrow_forwardcan i have the answer for this?arrow_forward
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