20
65. Consider a stock that is currently trading at $65. Calculate the intrinsic value for a put option that has
an exercise price of $55.
a.
$10
b.
$50
c.
$55
d.
−$10
e.
$0
66. Consider a stock that is currently trading at $20. Calculate the intrinsic value for a put option that has
an exercise price of $35.
a.
$15
b.
$55
c.
$35
d.
−$15
e.
$0
67. Consider a stock that is currently trading at $45. Calculate the intrinsic value for a call option that has
an exercise price of $35.
a.
$25
b.
$35
c.
$0
d.
−$10
e.
$10
68. Consider a stock that is currently trading at $10. Calculate the intrinsic value for a call option that has
an exercise price of $15.
a.
$25
b.
−$5
c.
$0
d.
$20
e.
$5
21
Exhibit 13-6
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT QUESTION(S)
The current stock price of ABC Corporation is $53.50. ABC Corporation has the following put and
call option prices that expire 6 months from today. The risk-free rate of return is 5% and the expected
return on the market is 11%.
Exercise Price
Put Price
Call Price
50
$1.50
$5.75
55
$3.25
—
69. Refer to Exhibit 13-6. What should the price be of a call option that expires 6 month from today with a
exercise price of $55?
a.
$1.33
b.
$3.08
c.
$4.58
d.
$6.07
e.
$6.33
70. Refer to Exhibit 13-6. What is the value of a synthetic stock created with put and call options that
expire in 6 months with an expiration price of $50?
a.
$53.04
b.
$53.53
c.
$54.54
d.
$55.03
e.
$56.23
71. Refer to Exhibit 13-6. How could an investor create arbitrage profits?
a.
Sell the stock short, write a put, buy a call and invest the proceeds at the risk-free rate.
b.
Buy the stock, write a put, buy a call and invest the proceeds at the risk-free rate.
c.
Sell the stock short, buy a put, write a call and invest the proceeds at the risk-free rate.
d.
Buy the stock, write a put, buy a call and borrow the strike price at the risk-free rate.
e.
Sell the stock short, write a put, buy a call and borrow the strike price at the risk-free rate.
22
72. A stock currently trades for $63. Call options with a strike price of $62 sell for $4.00 and expire in 6
months. If the risk-free rate is 4%, what should the price of a put option with an exercise price of $62
be worth?
a.
$0.62
b.
$0.98
c.
$1.80
d.
$3.00
e.
$5.80
73. You own a call option and put option that both have the same exercise price of $50 and their respective
prices are $4 and $3. The stock is currently trading at $60. Calculate the dollar return on this strategy.
a.
$1.00
b.
$2.00
c.
$3.00
d.
$4.00
e.
$5.00
74. A calendar spread requires the purchase and sale of two calls or two puts in the same stock
a.
With the same expiration date but different exercise prices.
b.
With the same exercise price but different expiration dates.
c.
With different exercise prices and different expiration dates.
d.
With the same exercise price and the same expiration month.
e.
Traded in different markets.
75. In a money spread, an investor would
a.
Buy two in-the-money call options on the same stock with different exercise dates.
b.
Buy two out-of-the-money call options on the same stock with different exercise dates.
c.
Sell two in-the-money call options on the same stock with different exercise dates.
d.
Sell an out-of-the-money call and purchase an in-the-money call on the same stock with
the same exercise date.
e.
Sell two out-of-the-money call options on the same stock with different exercise dates.
23
76. A money spread involves buying and selling call options in the same stock with
a.
The same time period and exercise price.
b.
The same time period but different exercise price.
c.
A different time period but same exercise price.
d.
A different time period and different exercise price.
e.
Options in different markets.
77. If you were to purchase an October option with an exercise price of 50 for 8 and simultaneously sell an
October option with an exercise price of 60 for 2, you would be
a.
Bullish and taking a high risk.
b.
Bullish and conservative.
c.
Bearish and taking a high risk.
d.
Bearish and conservative.
e.
Neutral.
78. You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit
but you are troubled about the short run behavior of the stock market. An effective action on your part
would be to
a.
Purchase a put.
b.
Purchase a call.
c.
Purchase an index option.
d.
Utilize a bearish spread.
e.
Utilize a bullish spread.
79. If you were to purchase an October option with an exercise price of 50 for $8 and simultaneously sell
an October option with an exercise price of 60 for $2, you would be
a.
Bullish and taking a high risk.
b.
Bullish and conservative.
c.
Bearish and taking a high risk.
d.
Bearish and conservative.
e.
Neutral.
80. A vertical spread involves buying and selling call options in the same stock with
a.
The same time period and price.
b.
The same time period but different price.
c.
A different time period but same price.
d.
A different time period and different price.
e.
Options in different markets.
24
81. What is equivalent to buying a bear spread?
a.
Selling a bull spread.
b.
Buying an out-of-the-money call and selling an in-the-money call on the same stock with
the same exercise date.
c.
Selling an out-of-the-money call and buying an in-the-money call on the same stock with a
different exercise price.
d.
Choices a and b.
e.
None of the above
82. A currency call is like being ____ in the currency futures.
a.
Out-of-the-money
b.
In-the-money
c.
Long
d.
Short
e.
At-the-money
83. A straddle is the simultaneous purchase (or sale) of a put and call option with the same underlying
asset,
a.
Same exercise price, and expiration date.
b.
Same exercise price but different expiration date.
c.
Same expiration date but different exercise price.
d.
All of the above.
e.
None of the above.
Exhibit 13-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Option Type
Currency
Contract
Size
50000
Expiry
April
Strike
Call
Put
$0.815
$0.0118
$0.820
$0.0068
25
84. Refer to Exhibit 13-7. How much must an investor pay for one call option contract?
a.
$680
b.
$815
c.
$625
d.
$590
e.
$340
85. Refer to Exhibit 13-7. How much must an investor pay for one put option contract?
a.
$680
b.
$815
c.
$340
d.
$625
e.
$590
86. Refer to Exhibit 13-7. If the spot rate at expiration is $0.90 and the call option was purchased, what is
the dollar gain or loss?
a.
$0
b.
$3750 gain
c.
$3660 gain
d.
$4650 loss
e.
$2680 loss
87. Refer to Exhibit 13-7. If the spot rate at expiration is $0.80 and the call option was purchased, what is
the dollar gain or loss?
a.
$123 gain
b.
$590 loss
c.
$312 gain
d.
$237 gain
e.
$0
26
88. Refer to Exhibit 13-7. If the spot rate at expiration is $0.85 and the put option was purchased, what is
the dollar gain or loss?
a.
$340 loss
b.
$125 gain
c.
$750 gain
d.
$750 loss
e.
$200 loss
89. Refer to Exhibit 13-7. If the spot rate at expiration is $0.75 and the put option was purchased, what is
the dollar gain or loss?
a.
$0
b.
$200 loss
c.
$200 gain
d.
$3160 gain
e.
$1187 loss
Exhibit 13-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
XYZ CORP
EXERCISE
NYSE
DATE
PRICE
PRICE
CLOSE
CALLS
OCT
85
16 3/4
101 11/16
OCT
90
12
101 11/16
OCT
95
7 5/8
101 11/16
PUTS
OCT
85
1/8
101 11/16
OCT
90
3/8
101 11/16
OCT
95
13/16
101 11/16
90. Refer to Exhibit 13-8. If you establish a long straddle using the options with an 85 exercise price, what
is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$18.75 loss
b.
$18.75 gain
c.
$1,668.75 gain
d.
$1,668.75 loss
e.
$1,687.50 loss
27
91. Refer to Exhibit 13-8. If you establish a long strap using the options with an 85 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$1,687.50 loss
b.
$3,362.50 loss
c.
$3,675.50 gain
d.
$13.00 gain
e.
$13.00 loss
92. Refer to Exhibit 13-8. If you establish a long strip using the options with an 85 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$1,668.75 gain
b.
$1,700.00 gain
c.
$1,700.00 loss
d.
$31.25 gain
e.
$31.25 loss
28
93. Refer to Exhibit 13-8. If you establish a long straddle using the options with an 90 exercise price, what
is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$68.75 loss
b.
$68.75 gain
c.
$37.50 loss
d.
$1,200.00 loss
e.
$1,200.00 gain
94. Refer to Exhibit 13-8. If you establish a long strap using the options with an 90 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$37.50 loss
b.
$37.50 gain
c.
$100.00 loss
d.
$100.00 gain
e.
$2,437.50 loss
95. Refer to Exhibit 13-8. If you establish a long strip using the options with an 90 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$106.25 gain
b.
$106.25 loss
c.
$1,275.00 loss
d.
$1,275.00 gain
e.
$75.00 loss
96. Refer to Exhibit 13-8. If you establish a long straddle using the options with an 95 exercise price, what
is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$668.75 gain
b.
$668.75 loss
c.
$94.56 gain
d.
$94.56 loss
e.
$81.25 loss
97. Refer to Exhibit 13-8. If you establish a long strap using the options with an 95 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$81.25 loss
b.
$1,606.25 gain
c.
$1,606.25 loss
d.
$268.75 loss
e.
$268.75 gain
30
98. Refer to Exhibit 13-8. If you establish a long strip using the options with a 95 exercise price, what is
your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a.
$256.25 loss
b.
$256.25 gain
c.
$925.00 loss
d.
$668.75 gain
e.
$668.75 loss
99. Refer to Exhibit 13-8. If XYZ were trading at $90/share and you formed a bull money spread, what is
your profit if XYZ is trading at $110 at expiration?
a.
$912.50 loss
b.
$87.50 gain
c.
$87.50 loss
d.
$1,000.00 gain
e.
$1,000.00 loss
31
100. Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to
maintain exposure to the sold stock. Suppose that you buy a call with a strike price of $70 and a price
of $6.75. Calculate the effective price paid to repurchase the stock if the price after 35 days is $65.
a.
$71.75
b.
$76.75
c.
$58.25
d.
$81.75
e.
None of the above
101. Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to
maintain exposure to the sold stock. Suppose that you buy a call with a strike price of $70 and a price
of $6.75. Calculate the effective price paid to repurchase the stock if the price after 35 days is $80.
a.
$81.75
b.
$73.25
c.
$86.75
d.
$76.75
e.
None of the above
102. Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to
maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price
of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $70.
a.
$77.75
b.
$87.25
c.
$82.25
d.
$72.75
e.
None of the above
32
103. Assume that you have just sold a stock for a loss at a price of $75, for tax purposes. You still wish to
maintain exposure to the sold stock. Suppose that you sell a put with a strike price of $80 and a price
of $7.25. Calculate the effective price paid to repurchase the stock if the price after 35 days is $85.
a.
$77.75
b.
$87.25
c.
$82.25
d.
$72.75
e.
None of the above.
Exhibit 13-9
USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S)
Consider the following information on put and call options for Bank of Montreal
Strike Price
Put Price
Call Price
$32.50
$2.85
$1.65
104. Refer to Exhibit 13-9. Calculate the net value of a protective put position at a stock price at expiration
of $20, and a stock price at expiration of $45.
a.
$6.35, $18.85
b.
$29.65, $42.15
c.
$21.65, $34.15
d.
$8, $8
e.
−$8, −$8
33
105. Refer to Exhibit 13-9. A protective put is an appropriate strategy if
a.
An investor wishes to generate additional income.
b.
An investor wished to insure against a decline in share values.
c.
An investor expected share prices to be volatile.
d.
An investor expected share prices to remain in a trading range.
e.
An investor expected share prices to be volatile, but was inclined to be bullish.
106. Refer to Exhibit 13-9. Calculate the net value of a covered call position at a stock price at expiration of
$20, and a stock price at expiration of $45.
a.
$6.35, $18.85
b.
$29.65, $42.15
c.
$21.65, $34.15
d.
$8, $8
e.
−$8, −$8
107. Refer to Exhibit 13-9. A covered call is an appropriate strategy if
a.
An investor wishes to generate additional income.
b.
An investor wished to insure against a decline in share values.
c.
An investor expected share prices to be volatile.
d.
An investor expected share prices to remain in a trading range.
e.
An investor expected share prices to be volatile, but was inclined to be bullish.
108. Refer to Exhibit 13-9. Calculate the payoffs of a long straddle at a stock price at expiration of $20 and
a stock price at expiration of $45.
a.
$6.35, $18.85
b.
$29.65, $42.15
c.
$21.65, $34.15
d.
$8, $8
e.
−$8, −$8
34
109. Refer to Exhibit 13-9. A long straddle is an appropriate strategy if
a.
An investor wishes to generate additional income.
b.
An investor wished to insure against a decline in share values.
c.
An investor expected share prices to be volatile.
d.
An investor expected share prices to remain in a trading range.
e.
An investor expected share prices to be volatile, but was inclined to be bullish.
110. Refer to Exhibit 13-9. Calculate the payoffs of a short straddle at a stock price at expiration of $20 and
a stock price at expiration of $45.
a.
$6.35, $18.85
b.
$29.65, $42.15
c.
$21.65, $34.15
d.
$8, $8
e.
−$8, −$8
111. Refer to Exhibit 13-9. A short straddle is an appropriate strategy if
a.
An investor wishes to generate additional income.
b.
An investor wished to insure against a decline in share values.
c.
An investor expected share prices to be volatile.
d.
An investor expected share prices to remain in a trading range.
e.
An investor expected share prices to be volatile, but was inclined to be bullish.
35
112. Refer to Exhibit 13-9. Calculate the payoffs of a long strap at a stock price at expiration of $20 and a
stock price at expiration of $45.
a.
$6.35, $18.85
b.
$29.65, $42.15
c.
$21.65, $34.15
d.
$8, $8
e.
−$8, −$8
113. Refer to Exhibit 13-9. A long strap is an appropriate strategy if
a.
An investor wishes to generate additional income.
b.
An investor wished to insure against a decline in share values.
c.
An investor expected share prices to be volatile.
d.
An investor expected share prices to remain in a trading range.
e.
An investor expected share prices to be volatile, but was inclined to be bullish.
114. Refer to Exhibit 13-10. What would the net value of a protective put position be if the stock price at
expiration is $35?
a.
$3.10
b.
$30.15
c.
$32.10
d.
$34.05
e.
$35.00
36
115. Refer to Exhibit 13-10. What would the net value of a covered call position be if the stock price at
expiration is $35?
a.
$29.00
b.
$30.65
c.
$33.55
d.
$36.00
e.
$36.65
116. Refer to Exhibit 13-10. What would the net value of a long straddle position be if the stock price at
expiration is $35?
a.
−$7.15
b.
−$1.15
c.
$1.15
d.
$7.15
e.
$36.15
117. Refer to Exhibit 13-10. What would the net value of a short straddle position be if the stock price at
expiration is $35?
a.
−$36.15
b.
−$7.15
c.
−$1.15
d.
$1.15
e.
$7.15
118. Refer to Exhibit 13-10. What would the net value of a long strap position be if the stock price at
expiration is $35?
a.
−$1.15
b.
−$2.30
c.
$1.15
d.
$2.30
e.
$5.20
37
119. Refer to Exhibit 13-10. Which strategy is most appropriate for an investor who expects stock prices to
be volatile, but is inclined to be bullish?
a.
protective put
b.
covered call
c.
long straddle
d.
short straddle
e.
long strap