Question 1

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

Accepted Answer

A decrease in the strike price of a call option makes it cheaper to buy the underlying asset at a lower price, thereby increasing the option's value as it becomes more likely to be profitable.

Question 2

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

Accepted Answer

The value of a call option generally increases as the time to expiration increases due to the greater possibility that the underlying asset's price will move in a favorable direction.

Question 3

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

Accepted Answer

The intrinsic value of a call option is the difference between the underlying stock's price and the strike price of the call, only when the stock's price is above the strike price. It is not the same as the market price of the call, which also includes time value and other factors.

Question 4

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

Accepted Answer

The value of a call option increases as the underlying stock price increases because the option gives the holder the right to buy the stock at a predetermined price, making the option more valuable if the stock price is higher.

Question 5

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

Accepted Answer

The value of a call option increases as the price of the underlying stock increases because the option gives the holder the right to buy the stock at a predetermined price, and if the stock's market price is higher, the call option becomes more valuable.

Question 6

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

Accepted Answer

The strike price is a key determinant of an option's value, as it is the price at which the option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset, affecting the option's intrinsic value and potentially its market value.

Question 7

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

Accepted Answer

Vega measures the sensitivity of an option's price to changes in the volatility of the underlying asset, which is often expressed in terms of the standard deviation of returns.

Question 8

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

Accepted Answer

The answer of Given that the underlying stock price is...

Question 9

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

Accepted Answer

The value of a put option typically decreases as the price of the underlying stock increases, because a put option gives the holder the right to sell the stock at a specified price, and this becomes less valuable as the stock price moves higher.

Question 10

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

Accepted Answer

The intrinsic value of a call option is the difference between the underlying asset's current price and the strike price, assuming the option is about to expire.

Question 11

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

Accepted Answer

The Black-Scholes Option Pricing Model specifically applies to European options, which can only be exercised at expiration, unlike American options that can be exercised at any time before expiration.

Question 12

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

Accepted Answer

An increase in the risk-free rate of return reduces the present value of the exercise price, making it cheaper to buy the stock in the future, thus increasing the value of the call option.

Question 13

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

Accepted Answer

The answer of Given that the underlying stock price is...

Question 14

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

Accepted Answer

As the exercise price of a call option increases, the likelihood that the option will be in-the-money (i.e., the market price of the underlying asset is above the exercise price) decreases, thus reducing the value of the call option.

Question 15

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

Accepted Answer

The Black-Scholes Option Pricing Model for calls is based on the stock price, strike price, time to maturity, standard deviation of the stock's returns (volatility), and the risk-free rate of return, not the price of the option itself.

Question 16

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

Accepted Answer

The answer of Given that the underlying stock price is...

Question 17

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

Accepted Answer

An increase in the T-bill rate (risk-free rate) increases the present value of the exercise price, which can increase the value of a call option according to the Black-Scholes model.

Question 18

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.

Accepted Answer

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 19

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

Accepted Answer

A decrease in the standard deviation (volatility) of the return on a stock typically decreases the value of a call option, as options are more valuable with higher volatility due to the greater potential for the stock to move above the strike price.

Question 20

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

Accepted Answer

The intrinsic value of a call option is the difference between the stock price and the strike price when the stock price is above the strike price, which is the minimum value (lower bound) the call option can have.

Quiz 25: Options and Corporate Securities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.