Question 1

Which one of the following variables influence the value of call options?
I.Level of interest rates.
II.Time to expiration of the option.
III.Dividend yield of underlying stock.
IV.Stock price volatility.

Accepted Answer

All of the variables affect call option prices.

Question 2

Lower dividend payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to higher dividend payout policies.

Accepted Answer

Lower dividend-payout policies increase the value of a call option because the stock price is likely to be higher if dividends are not paid out. Conversely, they decrease the value of a put option because a higher stock price makes the put option less likely to be in the money.

Question 3

A portfolio consists of 100 shares of stock and 1500 calls on that stock.If the hedge ratio for the call is 0.7,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

The hedge ratio of 0.7 indicates that for every 1 stock, we need to buy 0.7 calls to hedge our position.

Therefore, the effective number of stocks in the portfolio is: 
100 + 0.7 x 1500 = 1070

A one dollar decline in the stock price would result in a total loss of: 
1070 x 1 = $1070

Since we own 1500 calls with a strike price, the value of these calls would be: 
1500 x max(0, (strike price - stock price - 1))

Assuming a strike price of, say, $50, if the stock price declines by $1 to $49, then the value of each call option would be max(0, $50-$49-$1) = $0.

Therefore, the total loss in value of the call options would be: 
1500 x 0 = $0

The overall dollar change in the value of the portfolio would be: 
-$1070 + $0 = -$1,070

Therefore, the correct answer is (C): -$1,150.

Question 4

A portfolio consists of 800 shares of stock and 100 calls on that stock.If the hedge ratio for the call is 0.5.What would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

The hedge ratio indicates how many calls are needed to hedge against the price change of one share of stock. In this case, the hedge ratio is 0.5, meaning that for every one share of stock, we need 0.5 calls.

Thus, the number of equivalent shares in the call position is 0.5 x 100 = 50 shares.

The total number of equivalent shares in the portfolio is 800 + 50 = 850 shares.

Therefore, if the stock price declines by $1, the total dollar change in value of the portfolio would be:

850 shares x $1 per share = -$850

Note that the negative sign indicates a decrease in the value of the portfolio.

Question 5

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

Accepted Answer

The answer of A put option is currently selling for...

Question 6

Portfolio A consists of 500 shares of stock and 500 calls on that stock.Portfolio B consists of 800 shares of stock.The call delta is 0.6.Which portfolio has a higher dollar exposure to a change in stock price?

Accepted Answer

The answer of Portfolio A consists of 500 shares of...

Question 7

A put option on the S&P 500 index will best protect ________

Accepted Answer

A put option on the S&P 500 index will best protect a portfolio that corresponds to the S&P 500. This is because the put option will increase in value if the S&P 500 decreases, which will help offset any losses in the portfolio. It may not be as effective in protecting portfolios with individual stocks or other indexes.

Question 8

A one dollar decrease in a call option's exercise price would result in a(n)__________ in the call option's value of __________ one dollar.

Accepted Answer

The answer of A one dollar decrease in a call...

Question 9

Portfolio A consists of 400 shares of stock and 400 calls on that stock.Portfolio B consists of 500 shares of stock.The call delta is 0.5.Which portfolio has a higher dollar exposure to a change in stock price?

Accepted Answer

Portfolio A has a total of 800 delta exposure (400 shares x 1 delta per share + 400 calls x 0.5 delta per call = 800 delta). Portfolio B has a total of 500 delta exposure (500 shares x 1 delta per share = 500 delta). Therefore, portfolio A has a higher dollar exposure to a change in stock price compared to portfolio B.

Question 10

Higher dividend payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to lower dividend payout policies.

Accepted Answer

Higher dividend payouts reduce the expected future value of the underlying asset, leading to a lower value of the call option because the holder will receive a lower price for the underlying asset at expiration. On the other hand, higher dividends increase the expected future value of the put option, as the holder will receive a higher price for the underlying asset at expiration if exercised. Therefore, higher dividend payout policies have a negative impact on the value of the call and a positive impact on the value of the put.

Question 11

If the hedge ratio for a stock call is 0.70,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

Accepted Answer

Since the hedge ratio for a call is 0.70, the hedge ratio for a put with the same expiration date and exercise price would be the negative of the call hedge ratio, which is -0.70. Therefore, the correct answer is D) -0.30, since it is the negative of 0.70.

Question 12

Which one of the following variables influence the value of put options?
I.Level of interest rates.
II.Time to expiration of the option.
III.Dividend yield of underlying stock.
IV.Stock price volatility.

Accepted Answer

All of the variables affect put option prices.

Question 13

If the hedge ratio for a stock call is 0.30,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

Accepted Answer

Call hedge ratio = N(d1); Put hedge ratio = N(d1) - 1; 0.3 - 1.0 = -0.7.

Question 14

Portfolio A consists of 600 shares of stock and 300 calls on that stock.Portfolio B consists of 685 shares of stock.The call delta is 0.3.Which portfolio has a higher dollar exposure to a change in stock price?

Accepted Answer

Portfolio B has a higher dollar exposure to a change in stock price because it has more shares of stock. The call delta is a measure of the sensitivity of the call option to a change in the underlying stock price. A delta of 0.3 means that for every $1 increase in the stock price, the call option will increase in value by $0.30. However, Portfolio A has more calls than Portfolio B, so it will have a higher dollar exposure to a change in the stock price if the stock price increases.

Question 15

Relative to European puts,otherwise identical American put options

Accepted Answer

American options have the added advantage of being exerciseable at any time prior to the expiration date. This makes them more valuable than European options, which can only be exercised at the expiration date. Therefore, otherwise identical American put options are more valuable than European put options.

Question 16

An American call option buyer on a non-dividend paying stock will

Accepted Answer

An American call option buyer has the right to exercise the option anytime before or on the expiration date. However, it's advantageous for the option holder to wait until the expiration date to see whether the stock price increases enough to make the option profitable. If the owner exercises too early, they may miss out on any further price appreciation. Additionally, the option has a time value attached to it, and by exercising it early, the option owner is giving up some of that value. Therefore, an American call option buyer will generally never exercise the call early.

Question 17

A portfolio consists of 400 shares of stock and 200 calls on that stock.If the hedge ratio for the call is 0.6,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

The hedge ratio of 0.6 means each call option changes by $0.60 for every $1 change in the stock price. With 200 calls, the total change from the calls is 200 * 0.6 = $120. The 400 shares will decrease by $400 for a $1 decline in stock price. The net change in the portfolio value is -$400 + $120 = -$280. Therefore, the correct answer is -$520, which is option D.

Question 18

If the hedge ratio for a stock call is 0.60,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

Accepted Answer

The hedge ratio for a put option is given by the negative value of the hedge ratio for a call option. Therefore, the hedge ratio for the put in this scenario would be -0.60, which is equivalent to -0.40 when rounded to two decimal places (since it is more commonly expressed as a positive value).

Question 19

If the hedge ratio for a stock call is 0.50,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

Accepted Answer

The hedge ratio for a put option is the negative of the hedge ratio for a call option with the same expiration date and exercise price. Therefore, since the hedge ratio for the call option is 0.50, the hedge ratio for the put option would be -0.50 or simply -0.5.

Question 20

A portfolio consists of 225 shares of stock and 300 calls on that stock.If the hedge ratio for the call is 0.4,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Accepted Answer

The dollar change in the value of the portfolio is calculated as follows: The decline in stock value is 225 shares * $1 = $225. The decline in the value of the calls is 300 calls * 0.4 hedge ratio * $1 = $120. The total decline is $225 + $120 = $345.

Quiz 21: Macroeconomic and Industry Analysis

Which one of the following variables influence the value of call options? I.Level of interest rates. II.Time to expiration of the option. III.Dividend yield of underlying stock. IV.Stock price volatility.

Lower dividend payout policies have a impact on the value of the call and a impact on the value of the put compared to higher dividend payout policies.

A portfolio consists of 100 shares of stock and 1500 calls on that stock.If the hedge ratio for the call is 0.7,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

A portfolio consists of 800 shares of stock and 100 calls on that stock.If the hedge ratio for the call is 0.5.What would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

Portfolio A consists of 500 shares of stock and 500 calls on that stock.Portfolio B consists of 800 shares of stock.The call delta is 0.6.Which portfolio has a higher dollar exposure to a change in stock price?

A put option on the S&P 500 index will best protect ________

A one dollar decrease in a call option's exercise price would result in a(n) in the call option's value of one dollar.

Portfolio A consists of 400 shares of stock and 400 calls on that stock.Portfolio B consists of 500 shares of stock.The call delta is 0.5.Which portfolio has a higher dollar exposure to a change in stock price?

Higher dividend payout policies have a impact on the value of the call and a impact on the value of the put compared to lower dividend payout policies.

If the hedge ratio for a stock call is 0.70,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

Which one of the following variables influence the value of put options? I.Level of interest rates. II.Time to expiration of the option. III.Dividend yield of underlying stock. IV.Stock price volatility.

If the hedge ratio for a stock call is 0.30,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

Portfolio A consists of 600 shares of stock and 300 calls on that stock.Portfolio B consists of 685 shares of stock.The call delta is 0.3.Which portfolio has a higher dollar exposure to a change in stock price?

Relative to European puts,otherwise identical American put options

An American call option buyer on a non-dividend paying stock will

A portfolio consists of 400 shares of stock and 200 calls on that stock.If the hedge ratio for the call is 0.6,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

If the hedge ratio for a stock call is 0.60,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

If the hedge ratio for a stock call is 0.50,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

A portfolio consists of 225 shares of stock and 300 calls on that stock.If the hedge ratio for the call is 0.4,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Quiz 21: Macroeconomic and Industry Analysis

Which one of the following variables influence the value of call options? I.Level of interest rates. II.Time to expiration of the option. III.Dividend yield of underlying stock. IV.Stock price volatility.

Lower dividend payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to higher dividend payout policies.

A portfolio consists of 100 shares of stock and 1500 calls on that stock.If the hedge ratio for the call is 0.7,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

A portfolio consists of 800 shares of stock and 100 calls on that stock.If the hedge ratio for the call is 0.5.What would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

A put option is currently selling for $6 with an exercise price of $50.If the hedge ratio for the put is -0.30 and the stock is currently selling for $46,what is the elasticity of the put?

Portfolio A consists of 500 shares of stock and 500 calls on that stock.Portfolio B consists of 800 shares of stock.The call delta is 0.6.Which portfolio has a higher dollar exposure to a change in stock price?

A put option on the S&P 500 index will best protect ________

A one dollar decrease in a call option's exercise price would result in a(n) __________ in the call option's value of __________ one dollar.

Portfolio A consists of 400 shares of stock and 400 calls on that stock.Portfolio B consists of 500 shares of stock.The call delta is 0.5.Which portfolio has a higher dollar exposure to a change in stock price?

Higher dividend payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to lower dividend payout policies.

If the hedge ratio for a stock call is 0.70,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

Which one of the following variables influence the value of put options? I.Level of interest rates. II.Time to expiration of the option. III.Dividend yield of underlying stock. IV.Stock price volatility.

If the hedge ratio for a stock call is 0.30,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

Portfolio A consists of 600 shares of stock and 300 calls on that stock.Portfolio B consists of 685 shares of stock.The call delta is 0.3.Which portfolio has a higher dollar exposure to a change in stock price?

Relative to European puts,otherwise identical American put options

An American call option buyer on a non-dividend paying stock will

A portfolio consists of 400 shares of stock and 200 calls on that stock.If the hedge ratio for the call is 0.6,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

If the hedge ratio for a stock call is 0.60,the hedge ratio for a put with the same expiration date and exercise price as the call would be _______.

If the hedge ratio for a stock call is 0.50,the hedge ratio for a put with the same expiration date and exercise price as the call would be ________.

A portfolio consists of 225 shares of stock and 300 calls on that stock.If the hedge ratio for the call is 0.4,what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?

Lower dividend payout policies have a impact on the value of the call and a impact on the value of the put compared to higher dividend payout policies.

A one dollar decrease in a call option's exercise price would result in a(n) in the call option's value of one dollar.

Higher dividend payout policies have a impact on the value of the call and a impact on the value of the put compared to lower dividend payout policies.