10 MULTIPLE CHOISE

1.It is July and a trader buys 100 December call options with a strike price of $26. The stock price is $26 and the option price is $5.5.

At the expiration, the stock price becomes $31.64. Calculate the option profit to the trader.

2.

It is April and a trader buys 100 September put options with a strike price of $20. The stock price is $17.06 and the option price is $5.93.

At the expiration, the stock price becomes $18.58. Calculate the option profit to the trader.

3.

BBB-rated ABS CDOs have the same riskiness as BBB-rated ABSs.

True

False

4.

Bear Stearns was taken over by J.P. Morgan in the 2008 financial crisis.

True

False

5.

When buying options, there's virtually no credit risk because OCC requires margin account.

True

False

6.

Which is a right to sell a stock at a strike price on a maturity date?

European call option

American call option

European put option

American put option

7.

Option premium (option price) is fixed over time.

True

False

8.

Exercise price of an option is fixed.

True

False

9.

2 months ago, you paid $7 for a put option with a strike price of $30. The putoption expires today and the stock price is $22. You should exercise because the stock price is lower than the strike price.

True

False

10.

____________ is tranches created from a pool of mezzanine tranches.

ABS

ABS CDO

Synthetic CDO

Credit Default Swap