Question 1

Which one of the following will decrease the value of a put option?

Accepted Answer

An increase in the price of the stock decreases the value of a put option because a put option gives the holder the right to sell the stock at a predetermined price (strike price). If the stock's market price increases, it becomes less likely that the option will be exercised, as the market price would be higher than the strike price, making the put option less valuable.

Question 2

A security issued by a firm that gives its owner the right to purchase new shares of stock at a fixed price over a given period of time is called a(n):

Accepted Answer

American warrants give their holders the right to buy the issuer's stock at a specific price until the expiration date, which aligns with the description. Unlike options, which can be created by any investor, warrants are issued by the company itself, offering a way to purchase new shares directly from the company at a predetermined price.

Question 3

Which of the following best defines a convertible bond?

Accepted Answer

A convertible bond is a type of bond that can be converted into a predetermined number of shares of the issuing company's stock, within a specified time frame, making choice A the correct definition.

Question 4

A put option can best be defined as:

Accepted Answer

A put option gives the holder the right, but not the obligation, to sell an asset at a predetermined price within a specific time frame.

Question 5

A call option can best be defined as:

Accepted Answer

A call option gives the holder the right, but not the obligation, to buy an asset at a specified price within a specific time period.

Question 6

Which of the following best defines an exercising the option?

Accepted Answer

Exercising the option refers to the act of buying or selling the underlying asset via the option contract.

Question 7

Which of the following best defines an employee stock option (ESO)?

Accepted Answer

Employee Stock Options (ESOs) are options granted to employees by their company, allowing them to purchase shares of the company's stock at a fixed price for a certain period of time. This is a way for companies to incentivize and retain employees by giving them a stake in the company's future success.

Question 8

Which of the following best defines a European options?

Accepted Answer

European options are characterized by the fact that they can only be exercised on the expiration date, unlike American options, which can be exercised at any time before the expiration date.

Question 9

Jeff opted to exercise his August option on August 10 and received $2,500 in exchange for his shares. Jeff must have owned a(n):

Accepted Answer

Jeff received money in exchange for his shares, indicating he sold shares, which aligns with exercising a put option. An American put allows exercising at any time before expiration, fitting the scenario.

Question 10

European options:

Accepted Answer

European options can only be exercised on the expiration date, unlike American options which can be exercised at any time before expiration.

Question 11

The intrinsic value of an option is the:

Accepted Answer

The intrinsic value of an option is the lower bound of the option's value, representing the profit that could be realized if the option were exercised immediately. It does not consider the time value or potential future changes in the underlying asset's value.

Question 12

A European option can best be defined as:

Accepted Answer

European options can only be exercised on the expiration date, distinguishing them from American options, which can be exercised at any time up to the expiration date.

Question 13

A local retail store allows you to return the merchandise you purchase and get your money back for up to 30 days after the purchase date. The store has, in effect, provided each shopper with _______________ options.

Accepted Answer

An American put option allows the holder to sell an asset at a specified price at any time before the expiration date. Similarly, the store's policy allows customers to return the merchandise (effectively "sell" it back to the store) at the purchase price anytime within 30 days, matching the characteristics of an American put option.

Question 14

An option that gives its owner the right to sell an asset at a fixed price on a given date is called a(n):

Accepted Answer

A European put option gives the owner the right to sell an asset at a fixed price on a specific date.

Question 15

An option that grants the right, but not the obligation, to sell shares of the underlying asset on a particular date at a specified price is called:

Accepted Answer

The answer of An option that grants the right, but...

Question 16

Today is March 10^th. Jean just exercised her April option and received $450 in cash. Jean must have owned a(n):

Accepted Answer

Jean exercised her option before the expiration date (since it's currently March and the option is for April), which indicates she owned an American option, as European options can only be exercised at expiration. Since she received cash, it implies she sold the underlying asset at the strike price, which is characteristic of a put option.

Question 17

An American option can best be defined as:

Accepted Answer

An American option can be exercised at any time up to and including its expiration date, unlike European options which can only be exercised on the expiration date.

Question 18

Employee stock options:

Accepted Answer

Employee stock options are often granted on a regular basis, such as quarterly or annually, as part of an employee's compensation package to incentivize performance and align their interests with those of the shareholders.

Question 19

Which of the following best defines an expiration date?

Accepted Answer

An expiration date in the context of options trading is the last day on which the option can be exercised. After this date, the option contract becomes void and the holder cannot exercise the option.

Question 20

An option issued by an individual that gives its owner the right to buy an asset at a fixed price on or before a given date is called a(n):

Accepted Answer

American call options allow the holder to buy an asset at a predetermined price at any time up to the expiration date.

Quiz 25: Options and Corporate Securities

Which one of the following will decrease the value of a put option?

A security issued by a firm that gives its owner the right to purchase new shares of stock at a fixed price over a given period of time is called a(n) :

Which of the following best defines a convertible bond?

A put option can best be defined as:

A call option can best be defined as:

Which of the following best defines an exercising the option?

Which of the following best defines an employee stock option (ESO) ?

Which of the following best defines a European options?

Jeff opted to exercise his August option on August 10 and received $2,500 in exchange for his shares. Jeff must have owned a(n) :

European options:

The intrinsic value of an option is the:

A European option can best be defined as:

A local retail store allows you to return the merchandise you purchase and get your money back for up to 30 days after the purchase date. The store has, in effect, provided each shopper with _______________ options.

An option that gives its owner the right to sell an asset at a fixed price on a given date is called a(n) :

An option that grants the right, but not the obligation, to sell shares of the underlying asset on a particular date at a specified price is called:

Today is March 10^th. Jean just exercised her April option and received $450 in cash. Jean must have owned a(n) :

An American option can best be defined as:

Employee stock options:

Which of the following best defines an expiration date?

An option issued by an individual that gives its owner the right to buy an asset at a fixed price on or before a given date is called a(n) :

Quiz 25: Options and Corporate Securities

Which one of the following will decrease the value of a put option?

A security issued by a firm that gives its owner the right to purchase new shares of stock at a fixed price over a given period of time is called a(n) :

Which of the following best defines a convertible bond?

A put option can best be defined as:

A call option can best be defined as:

Which of the following best defines an exercising the option?

Which of the following best defines an employee stock option (ESO) ?

Which of the following best defines a European options?

Jeff opted to exercise his August option on August 10 and received $2,500 in exchange for his shares. Jeff must have owned a(n) :

European options:

The intrinsic value of an option is the:

A European option can best be defined as:

A local retail store allows you to return the merchandise you purchase and get your money back for up to 30 days after the purchase date. The store has, in effect, provided each shopper with _______________ options.

An option that gives its owner the right to sell an asset at a fixed price on a given date is called a(n) :

An option that grants the right, but not the obligation, to sell shares of the underlying asset on a particular date at a specified price is called:

Today is March 10th. Jean just exercised her April option and received $450 in cash. Jean must have owned a(n) :

An American option can best be defined as:

Employee stock options:

Which of the following best defines an expiration date?

An option issued by an individual that gives its owner the right to buy an asset at a fixed price on or before a given date is called a(n) :

Today is March 10^th. Jean just exercised her April option and received $450 in cash. Jean must have owned a(n) :