Question 1

Other things equal,the price of a stock call option is negatively correlated with the following factors
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)A,B,and C.

Accepted Answer

The price of a stock call option is negatively correlated with the exercise price; as the exercise price increases, the call option becomes less valuable.

Question 2

Prior to expiration
A)the intrinsic value of a call option is greater than its actual value.
B)the intrinsic value of a call option is always positive.
C)the actual value of a call option is greater than the intrinsic value.
D)the intrinsic value of a call option is always greater than its time value.
E)none of the above.

Accepted Answer

The actual value (market price) of a call option is typically greater than its intrinsic value due to the time value, which accounts for the potential of the option to increase in value before expiration.

Question 3

At expiration,the time value of an in the money put option is always
A)equal to zero.
B)negative.
C)positive.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

At expiration, the time value of an in the money put option will have eroded completely, and it will only have intrinsic value (the difference between the strike price and the stock price). Therefore, the time value will be zero.

Question 4

A put option has an intrinsic value of zero if the option is
A)at the money.
B)out of the money.
C)in the money.
D)A and C.
E)A and B.

Accepted Answer

The answer of A put option has an intrinsic value...

Question 5

Prior to expiration
A)the intrinsic value of a put option is greater than its actual value.
B)the intrinsic value of a put option is always positive.
C)the actual value of a put option is greater than the intrinsic value.
D)the intrinsic value of a put option is always greater than its time value.
E)none of the above.

Accepted Answer

The actual value (market price) of a put option includes both its intrinsic value and time value, making it typically greater than just the intrinsic value alone prior to expiration.

Question 6

A call option has an intrinsic value of zero if the option is
A)at the money.
B)out of the money.
C)in the money.
D)A and C.
E)A and B.

Accepted Answer

An option is said to be at-the-money when the underlying asset's price is equal to the strike price. An option is said to be out-of-the-money when the underlying asset's price is below the strike price for a call option and above the strike price for a put option. An option is said to be in-the-money when the underlying asset's price is above the strike price for a call option and below the strike price for a put option. An option with an intrinsic value of zero means that the option is either at-the-money or out-of-the-money.

Question 7

Other things equal,the price of a stock put option is positively correlated with the following factors
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)B,C,and D.

Accepted Answer

The price of a stock put option is positively correlated with the time to expiration, stock volatility, and exercise price. This means that as any of these factors increase, the price of the put option will also increase. However, the stock price itself has an inverse correlation with the price of a put option, meaning that as the stock price increases, the price of the put option will decrease. Therefore, the correct answer is E, which includes all of the factors except for the stock price.

Question 8

Other things equal,the price of a stock call option is positively correlated with the following factors
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)A,B,and C.

Accepted Answer

According to the Black-Scholes model, the price of a stock call option is positively related to the price of the underlying stock, the time to expiration and the volatility of the stock. Therefore, all three factors (A,B,C) will increase the price of a stock call option, while the exercise price (D) has a negative relationship with the price of a call option, as the option becomes less valuable as the exercise price increases. Hence, the best choice is E, i.e., A,B and C.

Question 9

If the stock price increases,the price of a put option on that stock __________ and that of a call option __________.
A)decreases, increases
B)decreases, decreases
C)increases, decreases
D)increases, increases
E)does not change,does not change

Accepted Answer

When the stock price increases, the price of a put option decreases because a put option gives the holder the right to sell the underlying stock at a specific price, and as the stock price increases, the likelihood of the stock falling below the specific price decreases. On the other hand, the price of a call option increases because a call option gives the holder the right to buy the underlying stock at a specific price, and as the stock price increases, the likelihood of the stock rising above the specific price increases.

Question 10

Other things equal,the price of a stock call option is positively correlated with the following factors except
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)none of the above.

Accepted Answer

The price of a stock call option is not positively correlated with the exercise price. In fact, it is negatively correlated with the exercise price. The lower the exercise price, the higher the price of the call option.

Question 11

If the stock price decreases,the price of a put option on that stock __________ and that of a call option __________.
A)decreases, increases
B)decreases, decreases
C)increases, decreases
D)increases, increases
E)does not change,does not change

Accepted Answer

A put option gains value when the underlying stock price decreases, as it allows the holder to sell the stock at a higher price than the market. Conversely, a call option loses value in this scenario because it grants the right to buy the stock at a price higher than the current market price, making it less attractive.

Question 12

Before expiration,the time value of an in the money call option is always
A)equal to zero.
B)positive.
C)negative.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

The time value of an in the money call option is made up of intrinsic value and time value. Intrinsic value is the difference between the stock price and exercise price, while time value is the premium paid for the possibility of the stock price increasing further before expiration. Since the option is in the money, it has intrinsic value, and the time value is positive as investors are willing to pay a premium for the potential further increase in stock price.

Question 13

Other things equal,the price of a stock put option is positively correlated with the following factors except
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)none of the above.

Accepted Answer

The price of a stock put option is negatively correlated with the stock price, as a decrease in stock price increases the value of a put option.

Question 14

Before expiration,the time value of an at the money call option is always
A)positive.
B)equal to zero.
C)negative.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

The time value of an at-the-money call option is always positive before expiration because there is potential for the option to become profitable as the stock price can move in favor of the option holder.

Question 15

Before expiration,the time value of an at the money put option is always
A)equal to zero.
B)equal to the stock price minus the exercise price.
C)negative.
D)positive.
E)none of the above.

Accepted Answer

The time value of an at-the-money put option is positive before expiration because there is still time for the underlying asset's price to move, which gives the option potential value.

Question 16

Other things equal,the price of a stock put option is negatively correlated with the following factors
A)the stock price.
B)the time to expiration.
C)the stock volatility.
D)the exercise price.
E)B,C,and D.

Accepted Answer

The price of a stock put option is negatively correlated with the stock price because as the stock price decreases, the value of the put option increases.

Question 17

Before expiration,the time value of an in the money put option is always
A)equal to zero.
B)negative.
C)positive.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

The time value of an in-the-money put option is positive before expiration because it includes the potential for further profit if the stock price decreases further.

Question 18

At expiration,the time value of an at the money put option is always
A)equal to zero.
B)equal to the stock price minus the exercise price.
C)negative.
D)positive.
E)none of the above.

Accepted Answer

At expiration, an at-the-money put option will have no intrinsic value since the stock price will be equal to the exercise price. Therefore, the option's value will be entirely made up of time value. As time value decreases as the option approaches expiration, it will eventually reach zero at expiration.

Question 19

At expiration,the time value of an in the money call option is always
A)equal to zero.
B)positive.
C)negative.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

The time value of an option represents the premium paid for the option beyond its intrinsic value (the difference between the stock price and the exercise price). At expiration, there is no time left until expiration for the option to gain any additional time value, so it will only have intrinsic value. Therefore, the time value of an in the money call option will be zero at expiration.

Question 20

At expiration,the time value of an at the money call option is always
A)positive.
B)equal to zero.
C)negative.
D)equal to the stock price minus the exercise price.
E)none of the above.

Accepted Answer

The time value of an option represents the difference between the option's price and its intrinsic value (the difference between the stock price and the exercise price at expiration). At expiration, an at the money option has no intrinsic value, as the stock price is equal to the exercise price. Therefore, the time value of an at the money call option will always be zero.

Quiz 21: Macroeconomic and Industry Analysis

Other things equal,the price of a stock call option is negatively correlated with the following factors

Prior to expiration

At expiration,the time value of an in the money put option is always

A put option has an intrinsic value of zero if the option is

Prior to expiration

A call option has an intrinsic value of zero if the option is

Other things equal,the price of a stock put option is positively correlated with the following factors

Other things equal,the price of a stock call option is positively correlated with the following factors

If the stock price increases,the price of a put option on that stock and that of a call option .

Other things equal,the price of a stock call option is positively correlated with the following factors except

If the stock price decreases,the price of a put option on that stock and that of a call option .

Before expiration,the time value of an in the money call option is always

Other things equal,the price of a stock put option is positively correlated with the following factors except

Before expiration,the time value of an at the money call option is always

Before expiration,the time value of an at the money put option is always

Other things equal,the price of a stock put option is negatively correlated with the following factors

Before expiration,the time value of an in the money put option is always

At expiration,the time value of an at the money put option is always

At expiration,the time value of an in the money call option is always

At expiration,the time value of an at the money call option is always