Question 1

Consider a stock that is currently trading at $65.Calculate the intrinsic value for a put option that has an exercise price of $55.
A) $10
B) $50
C) $55
D) -$10
E) $0

Accepted Answer

Put = Max[55 - 65,0] = $0

Question 2

Exhibit 20.5
Use the Information Below for the Following Problem(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share.
-Refer to Exhibit 20.5.If at expiration Peppy is selling for $47.00,what is Sarah's dollar gain or loss?
A) $25 loss
B) $250 loss
C) $25 gain
D) $250 gain
E) None of the above

Accepted Answer

[(55 - 47 - 8.25)× 100] = $25 loss

Question 3

A stock currently trades for $115.January call options with a strike price of $100 sell for $16,and January put options a strike price of $100 sell for $5.Estimate the price of a risk free bond.
A) $120
B) $15
C) $105
D) $116
E) $104

Accepted Answer

Bond price = 115 + 5 - 16 = $104

Question 4

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
 (1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $20.00.What is Tom's dollar gain/loss if at expiration the stock is selling for $105.00 per share?
A) $1000 gain
B) $200 loss
C) $1000 loss
D) $200 gain
E) None of the above

Accepted Answer

Put value = 0,therefore,loss = $2,000.00
Stock (105 - 87)(100)= $1,800.00
Net loss = $2,000 - 1,800 = $200.00 (loss)

Question 5

Consider a stock that is currently trading at $20.Calculate the intrinsic value for a put option that has an exercise price of $35.
A) $15
B) $55
C) $35
D) -$15
E) $0

Accepted Answer

Put = Max[35 - 20,0] = $15

Question 6

Datacorp stock currently trades at $50.August call options on the stock with a strike price of $55 are priced at $5.75.October call options with a strike price of $55 are priced at $6.25.Calculate the value of the time premium between the August and October options.
A) -$0.50
B) $0
C) $0.50
D) $5
E) -$5

Accepted Answer

Time premium = 6.25 - 5.75 = $0.50

Question 7

Consider a stock that is currently trading at $45.Calculate the intrinsic value for a call option that has an exercise price of $35.
A) $25
B) $35
C) $0
D) -$10
E) $10

Accepted Answer

Call = Max[45 - 35,0] = $10

Question 8

Exhibit 20.5
Use the Information Below for the Following Problem(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share.
-Refer to Exhibit 20.5.If at expiration Peppy is selling for $42.00,what is Sarah's dollar gain or loss?
A) $420 gain
B) $420 loss
C) $475 loss
D) $475 gain
E) None of the above

Accepted Answer

[(55 - 42 - 8.25)× 100] = $475 gain

Question 9

A stock currently trades at $110.June call options on the stock with a strike price of $105 are priced at $4.Calculate the arbitrage profit that you can earn.
A) $0
B) $1
C) $5
D) $4
E) None of the above

Accepted Answer

Arbitrage profit = 110 - 105 - 4 = $1

Question 10

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
 (1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a 3-month Johnson Walker put option with an exercise price of $105.00 for $20.00.What is his dollar gain if at expiration the stock is selling for $80.00 per share?
A) $200 loss
B) $700 loss
C) $200 gain
D) $700 gain
E) None of the above

Accepted Answer

Profit on put = 105 - 80 - 20 = 5
5 × 100 = $500.00
Loss on stock = $700.00
Net loss = $700.00 - 500.00 = $200.00 (loss)

Question 11

Consider a stock that is currently trading at $10.Calculate the intrinsic value for a call option that has an exercise price of $15.
A) $25
B) -$5
C) $0
D) $20
E) $5

Accepted Answer

Call = Max[10 - 15,0] = $0

Question 12

Exhibit 20.5
Use the Information Below for the Following Problem(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share.
-Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?
A) 60.60% gain
B) 6.06% loss
C) 60.60% loss
D) 6.06% gain
E) None of the above

Accepted Answer

[(55 - 47 - 8.25)¸ 8.25] × 2 = 6.06% loss

Question 13

Assume that you have purchased a call option with a strike price $60 for $5.At the same time you purchase a put option on the same stock with a strike price of $60 for $4.If the stock is currently selling for $75 per share,calculate the dollar return on this option strategy.
A) $10
B) -$4
C) $5
D) $6
E) $15

Accepted Answer

Profit on call = (75 - 60)- 5 = 10
Profit on put = -4
Total = $6

Question 14

Exhibit 20.5
Use the Information Below for the Following Problem(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share.
-Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?
A) 11.51% gain
B) 115.15% gain
C) 11.51% loss
D) 115.15% loss
E) None of the above

Accepted Answer

[(55 - 42 - 8.25)¸ 8.25] × 2 = 115.15% gain

Question 15

Assume that you purchased shares of a stock at a price of $35 per share.At this time you purchased a put option with a $35 strike price of $3.The stock currently trades at $40.Calculate the dollar return on this option strategy.
A) $3
B) -$2
C) $2
D) -$3
E) $0

Accepted Answer

Profit on stock = 40 - 35 = 5
Profit on put = -3
Total = $2

Question 16

A stock currently trades at $110.June call options on the stock with a strike price of $120 are priced at $5.75.Calculate the dollar return on one call contract.
A) -$1000
B) $1000
C) $575
D) -$575
E) $0

Accepted Answer

Dollar return = (110 - 120 - 5.75)(100)= -$575

Question 17

A stock currently trades at $110.June put options on the stock with a strike price of $100 are priced at $5.25.Calculate the dollar return on one put contract.
A) -$525
B) $1000
C) $0
D) -$1000
E) $525

Accepted Answer

Dollar return = (100 - 110 - 5.25)(100)= -$525

Question 18

A stock currently trades for $25.January call options with a strike price of $30 sell for $6.The appropriate risk free bond has a price of $30.Calculate the price of the January put option.
A) $11
B) $24
C) $19
D) $30
E) $25

Accepted Answer

P = 6 + 30 - 25 = $11

Question 19

Assume that you purchased shares of a stock at a price of $35 per share.At this time you wrote a call option with a $35 strike and received a call price of $2.The stock currently trades at $70.Calculate the dollar return on this option strategy.
A) $25
B) -$2
C) $2
D) -$25
E) $0

Accepted Answer

Profit on stock = 70 - 35 = 35
Profit on call = 35 - 70 + 2 = -23
Total = $2

Question 20

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
 (1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Refer to Exhibit 20.4.Assuming no commissions or taxes,what is the annualized percentage gain if the stock is at $30 in four months and the stock was purchased?
A) 9.54% loss
B) 95.45% loss
C) 0.9545% gain
D) 95.45% gain
E) 9.54% gain

Accepted Answer

[(30 - 44)¸ 44] × 3 = 95.45% loss

Quiz 20: An Introduction to Derivative Markets and Securities

Consider a stock that is currently trading at $65.Calculate the intrinsic value for a put option that has an exercise price of $55.

A stock currently trades for $115.January call options with a strike price of $100 sell for $16,and January put options a strike price of $100 sell for $5.Estimate the price of a risk free bond.

Consider a stock that is currently trading at $20.Calculate the intrinsic value for a put option that has an exercise price of $35.

Datacorp stock currently trades at $50.August call options on the stock with a strike price of $55 are priced at $5.75.October call options with a strike price of $55 are priced at $6.25.Calculate the value of the time premium between the August and October options.

Consider a stock that is currently trading at $45.Calculate the intrinsic value for a call option that has an exercise price of $35.

A stock currently trades at $110.June call options on the stock with a strike price of $105 are priced at $4.Calculate the arbitrage profit that you can earn.

Consider a stock that is currently trading at $10.Calculate the intrinsic value for a call option that has an exercise price of $15.

Exhibit 20.5 Use the Information Below for the Following Problem(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?

Assume that you have purchased a call option with a strike price $60 for $5.At the same time you purchase a put option on the same stock with a strike price of $60 for $4.If the stock is currently selling for $75 per share,calculate the dollar return on this option strategy.

Exhibit 20.5 Use the Information Below for the Following Problem(S) Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share. -Refer to Exhibit 20.5.What is Sarah's annualized gain/loss?

Assume that you purchased shares of a stock at a price of $35 per share.At this time you purchased a put option with a $35 strike price of $3.The stock currently trades at $40.Calculate the dollar return on this option strategy.

A stock currently trades at $110.June call options on the stock with a strike price of $120 are priced at $5.75.Calculate the dollar return on one call contract.

A stock currently trades at $110.June put options on the stock with a strike price of $100 are priced at $5.25.Calculate the dollar return on one put contract.

A stock currently trades for $25.January call options with a strike price of $30 sell for $6.The appropriate risk free bond has a price of $30.Calculate the price of the January put option.

Assume that you purchased shares of a stock at a price of $35 per share.At this time you wrote a call option with a $35 strike and received a call price of $2.The stock currently trades at $70.Calculate the dollar return on this option strategy.