1) Because of the small cash outlay to buy an option, these securities are considered to be conservative investments.

Question 1 options:

	a) True
	b) False

2) When a call option is exercised, new stock is issued.

Question 4 options:

	a) True
	b) False

3) There is no limit to the potential loss from buying a call option

Question 5 options:

	a) True
	b) False

4) Call options offer buyers

Question 6 options:

a)	potential leverage

b)

liquidity

c)

income

d)	safety of principal

5) The most the individual who buys a put option can lose is the cost of the option.

Question 10 options:

	a) True
	b) False

6) The hedge ratio determines

Question 12 options:

a)	the number of call options to offset movements in the price of the stock

b)	the number of call options to offset a straddle

c)	the number of put options to offset movements in the price of a call option

d)	the number of call options to offset the impact of changes in interest rate

7) According to the Black/Scholes option valuation model, the value of a call option rises as it approaches expiration.

Question 13 options:

	a) True
	b) False

8) According to put-call parity, if a stock is overvalued (overpriced), the investor should sell the stock short, sell the put, buy the call, and buy the bond.

Question 14 options:

	a) True
	b) False

9) Put-call parity suggests that

Question 11 options:

a)	the sum of the prices of a stock and a call equal zero

b)	the sum of the prices of a put and a call equal zero

c)	the sum of the prices of a stock, a call, a put, and a bond equal zero

d)	sum of the prices of a stock and a put must equal the sum of the prices of a call and a discounted bond with the maturity date as the expiration date of the options