Deck 25: Options and Corporate Securities

Question 1

When the market interest rates increase, it would unambiguously decrease the value of an American put option.

Answer 1

True

Question 2

The value of a put decreases as the exercise price increases.

Answer 2

False

Question 3

The risk-free rate of return is a variable that determines the value of an option.

Answer 3

True

Question 4

The expiration date is the only date the owner of a European option can exercise the option.

Question 5

When the variance of the underlying asset increases, it would unambiguously decrease the value of an American put option.

Question 6

The value of a call increases when the volatility of the price of the underlying stock increases.

Question 7

A put option is a wasting asset; i.e., its value declines with the passage of time, all else equal.

Question 8

Buying a call option gives you the right to purchase shares.

Question 9

A protective put entails the purchase of a put option on a stock to limit the downside risk associated with owning that stock.

Question 10

The seller of a put agrees to purchase shares of stock if the option is exercised.

Question 11

Selling a call option may give you the obligation to sell shares.

Question 12

The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as a protective put.

Question 13

An increase in the exercise price will increase the value of a call option.

Question 14

Selling a put option may give you the obligation to buy shares.

Question 15

An increase in the underlying stock price will increase the value of a call option.

Question 16

An increase in the time to expiration will increase the value of a call option.

Question 17

When the exercise price is increased, it would unambiguously decrease the value of an American put option.

Question 18

The strike price is the price the owner of a call pays per share to purchase shares of stock.

Question 19

The primary purpose of a protective put is to limit the downside risk of asset ownership:

Question 20

Buying a put option gives you the right to sell shares.

Question 21

Exercise price Is a variables that is included in the Black-Scholes call option pricing formula.

Question 22

The intrinsic value of a call is always equal to zero if the call is currently out of the money.

Question 23

The underlying stock price is a variable that determines the value of an option.

Question 24

Gamma is the sensitivity of an option's value to a change in the risk-free rate.

Question 25

The formula C₀ >= (S₀ + E) if (S₀ + E) >= 0 correctly describe the boundary values for an American call option.

Question 26

According to the Black-Scholes model, when the exercise price is increased, it results in a decrease in the value of a call option.

Question 27

The effect on an option's value of a small change in the value of the underlying asset is called the option theta.

Question 28

According to the Black-Scholes model, when the expiration date is extended, it results in a decrease in the value of a call option.

Question 29

Stock price Is a variables that is included in the Black-Scholes call option pricing formula.

Question 30

Delta is the effect on an option's value of a small change in the value of the underlying asset is called the option.

Question 31

The formula C₀ = S₀ correctly describes the boundary values for an American call option.

Question 32

Standard deviation of the return on a stock Is a variables that is included in the Black-Scholes call option pricing formula.

Question 33

The sensitivity of an option's value to a change in the option's time to expiration is measured by the option theta.

Question 34

Put-call parity is the relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset.

Question 35

The time to expiration is a variable that determines the value of an option.

Question 36

The sensitivity of an option's value to a change in the risk-free rate is measured by the option rho.

Question 37

When the value of the underlying asset increases, it would unambiguously decrease the value of an American put option.

Question 38

An increase in the variance of the return on the underlying asset will increase the value of a call option.

Question 39

The formula C₀ >= 0 if (S₀ - E) correctly describes the boundary values for an American call option.

Question 40

Stock beta is a variables that is included in the Black-Scholes call option pricing formula.

Question 41

Given an underlying stock price of $45.80, the November 47 1/2 put is in the money.

Question 42

A decrease in the Time to expiration will increase the value of a put option.

Question 43

A decrease in the Variance of return of the underlying asset will increase the value of a put option.

Question 44

When the following value of the underlying asset increases, it would unambiguously increase the value of an American put option.

Question 45

According to the Black-Scholes model, when the risk-free rate increases, it results in a decrease in the value of a call option.

Question 46

Given an underlying stock price of $45.80, the November 50 call is in the money.

Question 47

A decrease in the Exercise price will increase the value of a put option.

Question 48

Given an underlying stock price of $45.80, the October 45 put is in the money.

Question 49

A decrease in the current value of the underlying security will increase the value of a put option.

Question 50

When the market interest rates increase, it would unambiguously increase the value of an American put option.

Question 51

According to the Black-Scholes model, when the variance of the underlying asset decreases, it results in a decrease in the value of a call option.

Question 52

C₁ = 0 if (S₁- E) < 0 identifies the value of a call option at expiration.

Question 53

An American call option, with an exercise price of $5, sells for $2; the stock price is $8 presents an arbitrage opportunity. (Assume no transaction costs and any option can be exercised immediately).

Question 54

Given an underlying stock price of $45.80, the October 45 call is in the money.

Question 55

Given that the underlying stock price is $25, the March 22 1/2 put is in the money.

Question 56

When the exercise price is increased, it would unambiguously increase the value of an American put option.

Question 57

C₁ = (S₁- E) if (S₁- E) > 0 identifies the value of a call option at expiration.

Question 58

C₁ = 0 if (S₁- E) > 0 identifies the value of a call option at expiration.

Question 59

An American put option, with an exercise price of $15, sells for $7.50; the stock price is $6 presents an arbitrage opportunity. (Assume no transaction costs and any option can be exercised immediately).

Question 60

C₁ = (S₁- E) if (S₁- E) < 0 identifies the value of a call option at expiration.

Question 61

A decrease in the strike price will increase the value of a call option.

Question 62

The value of a call increases when the time to expiration increases.

Question 63

The intrinsic value of a call is another name for the market price of a call.

Question 64

The value of a call increases when the stock price increases.

Question 65

The value of a call increases as the price of the underlying stock increases.

Question 66

The strike price is a variable that determines the value of an option.

Question 67

The sensitivity of an option's value to a change in the standard deviation of the return on the underlying asset is measured by the option vega

Question 68

Given that the underlying stock price is $25, then the February 20 put is in the money.

Question 69

The value of a put increases as the price of the underlying stock increases.

Question 70

The intrinsic value of a call is the value of the call if it were about to expire.

Question 71

The Black-Scholes Option Pricing Model as it pertains to calls is based on European options.

Question 72

The value of a call increases when the risk-free rate of return increases.

Question 73

Given that the underlying stock price is $25, then the February 20 call is in the money.

Question 74

The value of a call decreases as the exercise price increases.

Question 75

The Black-Scholes Option Pricing Model as it pertains to calls is based on the stock price, strike price, time to maturity, standard deviation of the stock, and the price of the

Question 76

Given that the underlying stock price is $25, then the January 20 call is in the money.

Question 77

An increase in the T-bill rate will increase the value of a call option.

Question 78

The Black-Scholes Option Pricing Model as it pertains to calls is based on the formula C = [S][N(d₁)]-[E][N(d₂)]/(1 + R_f)^t for non-dividend paying stocks with European options.

Question 79

A decrease in the standard deviation of the return on the stock will increase the value of a call option.

Question 80

The intrinsic value of a call is equal to the lower bound of a call's value.