Chapter 21 Option Valuation Answer Key
Multiple Choice Questions
1.
Before expiration, the time value of an in–the-money call option is always
2.
Before expiration, the time value of an in-the-money put option is always
3.
Before expiration, the time value of an at-the-money call option is always
4.
Before expiration, the time value of an at-the-money put option is always
5.
At expiration, the time value of an in-the-money call option is always
6.
At expiration, the time value of an in-the-money put option is always
7.
At expiration, the time value of an at-the-money call option is always
8.
At expiration, the time value of an at-the-money put option is always
9.
A call option has an intrinsic value of zero if the option is
10.
A put option has an intrinsic value of zero if the option is
11.
Prior to expiration
12.
Prior to expiration
13.
If the stock price increases, the price of a put option on that stock __________ and that of a
call option __________.
14.
If the stock price decreases, the price of a put option on that stock __________ and that of
a call option __________.
15.
Other things equal, the price of a stock call option is positively correlated with the
following factors except
16.
Other things equal, the price of a stock call option is positively correlated with which of the
following factors?
17.
Other things equal, the price of a stock call option is negatively correlated with which of
the following factors?
Topic: Option Valuation
18.
Topic: Option Valuation
Other things equal, the price of a stock put option is positively correlated with the
following factors except
19.
Other things equal, the price of a stock put option is positively correlated with which of the
following factors?
20.
Other things equal, the price of a stock put option is negatively correlated with which of
the following factors?
21.
The price of a stock put option is __________ correlated with the stock price and
__________ correlated with the striking price.
22.
The price of a stock call option is __________ correlated with the stock price and
__________ correlated with the striking price.
23.
All the inputs in the Black-Scholes option pricing model are directly observable except
24.
Which of the inputs in the Black-Scholes option pricing model are directly observable?
25.
Delta is defined as
Topic: Option Valuation
26.
A hedge ratio of 0.70 implies that a hedged portfolio should consist of
Topic: Option Valuation
27.
A hedge ratio of 0.85 implies that a hedged portfolio should consist of
28.
A hedge ratio for a call option is ________ and a hedge ratio for a put option is ______.
Topic: Option Valuation
29.
A hedge ratio for a call is always
30.
A hedge ratio for a put is always
31.
The dollar change in the value of a stock call option is always
32.
The percentage change in the stock call option price divided by the percentage change in
the stock price is called
33.
The elasticity of an option is
34.
The elasticity of a stock call option is always
35.
The elasticity of a stock put option is always
36.
The gamma of an option is
37.
Delta neutral
38.
Dynamic hedging is