1.

A writer of a call option expect the value of the underlying asset to _____________ while a buyer of a put will want the value of the underlying asset to ____________ compared to the striking price, in order to earn profits.

a. increase; increase

b. increase; decrease

c. decrease; decrease

d. decrease; increase

2.

Which of the following statement is NOT true on option intrinsic value?

a. At maturity, option value equals intrinsic value.

b. Intrinsic value is positive for at-the-money options.

c. Lowest value is zero, it is never negative.

d. Intrinsic value for a put option equals exercise price minus spot price.

3.

A $45.00 put option on a stock with the spot price at $41 is priced at $6.50 premium. This put has an intrinsic value of __________ and a time value of __________. (Assume no transaction costs and taxes)

a. $2.50; $4.00

b. $4.00; $2.50

c. $0; $6.50

d. $6.50; $0