2) Which of the following statements is FALSE? A) The option buyer, also called the option holder, holds the right to exercise the option and has a long position in the contract. B) The market price of the option is also called the exercise price. C) If the payoff from exercising an option immediately is positive, the option is said to be in-the- money. D) As with other financial assets, options can be bought and sold. Standard stock options are traded on organized exchanges, while more specialized options are sold through dealers.

2) Which of the following statements is FALSE? A) The option buyer, also called the option holder, holds the right to exercise the option and has a long position in the contract. B) The market price of the option is also called the exercise price. C) If the payoff from exercising an option immediately is positive, the option is said to be in-the- money. D) As with other financial assets, options can be bought and sold. Standard stock options are traded on organized exchanges, while more specialized options are sold through dealers.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Explain why an American call options on futures could be optimally exercised early while call options on the spot can not be optimally exercised. Assume that there is no dividend. Explain how to use call options and put options to create a synthetic short position in stock.
Define each of the following terms:a. Derivative; natural hedgeb. Option; call option; put optionc. Long-term Equity Anticipation Security (LEAPS)d. Exercise value; strike (exercise) pricee. Binomial Option Pricing Model; Black–Scholes Option Pricing Model; riskless hedgef. Futures contract; forward contractg. Commodity futures; financial futuresh. Swap; structured notei. Inverse floaterj. Risk managementk. Speculationl. Hedging; long hedges; short hedges; perfect hedge
4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.
(15) The is the stock price minus exercise price, or the profit that could be attained by immediate exercise of an in-the-money call option. *A) intrinsic value B) time value C) stated value D) discounted value
2. Exercise value and option price The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock's price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or "issue" new options, which is called writing options. The following table presents the data on ABC Corp.'s call options at different stock prices. Based on your understanding of exercise value and option prices, complete the table with a strike price of $24.00: Stock Price ($) 16.00 32.00 40.00 44.00 48.00 Strike Price ($) 24.00 24.00 24.00 24.00 24.00 Exercise Value ($) Market Price of Option ($) 1.56 10.10 0.00 20.00 18.40 22.60 28.00 Time Value ($) 2.10 2.40 4.00 After two weeks, the stock price of ABC Corp. increases to…
The buyer of a call option on stock benefits if the underlying stock price rises or if the volatility of the stock's price increases. Select one: True False
Describe what a stock option is. what does it means to buy a "put" or a "call" and what you are expecting the stock to do for each (ie go up or down in price). Discuss when you would make money on a put option and when you would make money on a call option.
Which of the following inputs is not required to price option using the Black‐Scholes model? a) the asset price b) the time to maturity c) the asset’s risk premium d) the risk‐free rate of interest
You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock that does not pay dividends. The strike price of the options is the same. The payout of the cash-or- nothing option if it is exercised equals the strike price. Your portfolio is equivalent to O A plain-vanilla call option. O None of the other answers are correct. O A covered call position, i.e., a long stock + short plain vanilla call. O A plain-vanilla put option. O A protective put position, i.e., a long stock + long put option.
The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock’s price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or “issue” new options, which is called writing options. Based on your understanding of exercise value and option prices, complete the table with a strike price of $30.00: Stock Price ($) Strike Price ($) Exercise Value ($) Market Price of Option ($) Time Value ($) 20.00 30.00 0.00 1.56 40.00 30.00 12.10 2.10 50.00 30.00 22.40 2.40 55.00 30.00 25.00 27.60 60.00 30.00 34.00 4.00 After two weeks, the stock price of ABC Corp. increases to $62.40. Suppose you purchased the shares for $40.00 and then sell…
The buyer of a Call Option has the obligation to purchase shares of the underlying stock. True False
Which of the following is NOT a real option? A. An abandonment option B. An expansion option C. A stock option D. An investment timing option

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