1. You Own a stock, and you're concerned that the price of the stock may decline. What might you do to minimize risk of loss on the stock?

A. Buy a put

B. buy a call

c. write a put

d. buy a warrant

2. At a single time, a stocks price is $10 and the premium for a call option on the stock is $3. The strike price on the option is $8. How should you explain the additional value of the premium over the difference between strike price and stock price.

a. the stock price and option price may have been quoted at different times when stock values were different.

b. the market value of the option premium equals the difference between the strike price and the market value of the stock

c. the market value of the option premium equals the difference between the stock market value and the strike price plus a time premium

d. the hypothetical price of the option is less than the time premium.

3. which of the following strategies offers the greatest potential to maximimze rate of return on a stock if the stock price rises after you implement the strategy?

a. purchase a stock and supplement your return by purchasing a call option on the stock

b. assume a naked position in the stock with a call option

c. write a covered put on the stock

d. write a naked put on the stock

4. you speculate that the value of a stock wont drop, and youre unwilling to purchase the stock or pay a premium for an option. what position would you take to profit by the stock's price not dropping?

a write a put

b. purchase a call

c. write a call

d. employ a covered position.

7. what is your profit or loss under the following circumstances? you buy a stock for $30, and its price suddenly drops to $25. to avoid the risk of further losses, you buy a put with a $30 strike price for $6. Subsequently, the stock price rises to $35, the option expires, and you sell the stock.

a. $1 profit

b. $1 loss

c. $6 loss

D. $15 loss

8.What is your profit or loss under the following circumstances? You buy a stock for $25, and simultaneously write a covered call with a $20 strike price and $7 premium. The stock price rises to $28, and the buyer exercises the option and you sell your ownership in the stock.

a. $3 loss

b. $2 loss

c. $2 profit

D. $3 profit

9.Which of the following positions would ordinarily minimize potential loss in terms of percentage of investment? Assume the loss would be realized during the term of the option.

a.Purchase a stock at $25

b.Purchase a stock at $25 and a call on the stock for a $5 premium with a $21 strike price

c.Purchase a call option for $4

d.Purchase a stock at $25, and a put on the stock for a $5 premium with a $29 strike price.

10.The risk of shorting a stock is greater than the risk of buying a put because

a.the stock price can fall to zero, while the put limits risk to the amount of the premium

b.a stock price change results in a relatively smaller change in an option on that stock

c.the maximum risk of a put is the premium, while the maximum risk of shorting is unlimited because price can rise without limit.

d.options provide unlimited hedging opportunities that render option positions less risky than short stock positions.