1) If a call option is out of the money,

A) It is not worth exercising.

B) The value of the underlying asset is less than the exercise price.

C) The option no longer exists.

D) It is not worth exercising, and the value of the underlying asset is less than the exercise price.

2) Which one of the following is NOT a determinant in valuing a call option?

A) Exercise price.

B) Expiration date.

C) Forward contract price.

D) Interest rate.

3) Which one of the following is NOT correct regarding the value of options?

A) As the stock price increases, the value of a put option decreases but the value of a call option increases.

B) The higher the strike price, the lower the value of a call option and the higher the value of a put option.

C) The value of a put option is adversely related to the risk-free interest rate, and the value of a call is positively related to the risk-free interest rate.

D) Volatility of the underlying stock increases the value of a call option but decreases the value of a put option.

4) An entity is planning on issuing at par, 5 million of 10-year, non-prepayable debt at 9% interest. The entity wants to convert its fixed-rate interest payments to floating-rate interest payments based on the London interbank offered rate. Which one of the following contracts should the entity consider?

A) Options.

B) Forwards.

C) Futures.

D) Swaps.