1. The single period binomial hedge ratio for stock call options could be computed by equating the two future cash flows -- from a portfolio of long h shares of stock and short one call -- and solve for the number of underlying stocks to hold.

a. True

b. False

2. If a call is underpriced and you buy the call and sell short the stock, it is equivalent to investing money at more than the risk-free rate.

a. True

b. False

3. One party to a forward transaction does not bear the risk that the other party will default.

a. True

b. False

4. If an option portfolio generates a zero cash flow at expiration and a positive cash flow today, an arbitrage opportunity is available.

a. True

b. False

5. The lower the exercise price, the more valuable the call option.

a. True

b. False

6. The Options Clearing Corporation guarantees the obligations of traders on many options exchanges.

a. True

b. False