14. The higher the amount of dividends a stock pays, the

a. the lower its dividend yield.

b. the higher the value of a call option.

c. the value of a call will increase immediately after the ex-dividend day.

d. the lower the value of a call option.

15. A put option is out of the money if the

a. expiration date is more than six months.

b. market price is greater than the exercise price.

c. the stock declares a dividend.

d. market and exercise prices are equal.

16. A put option gives the owner the

a. obligation to sell shares.

b. right to buy shares.

c. right to sell shares.

d. right to buy or sell shares.

17. Buying and selling a call option on the same stock with the same strike price and expiration date is a

a. strip.

b. straddle.

c. spread.

d. split.

18. If an investor buys a call with a strike price of $90 and the underlying stock at the time of expiration is $96, what is her profit or loss per share if she paid the writer $4 a share?

a. $2

b. $1

c. -$1

d. -$2

19. If a writer sells a put with a strike price of $70 at $3 per share, what is his profit or loss if the underlying stock at expiration is selling at $72?

a. $4

b. $3

c. -$3

d. -$4

20. If a writer sells a naked call option with an exercise price of $100 at $9 per share, what is her profit or loss at expiration is the stock is selling at $115?

a. $5

b. -$5

c. -$6

d. -$10

22. A(n) ____ will increase the market value of a put option.

a. interest rate change

b. increase in the dividend rate of the underlying stock

c. decrease in the volatility of the underlying stock

d. decrease in the earnings rate of the underlying stock

23. A(n) ____ will increase the market value of a call option.

a. decrease in the announced dividend amount

b. decrease in the time to expiration

c. decrease in the volatility of the underlying stock

d. increase in the interest rate

24. You own a call option with a strike price of $40 and a stock market price of $46. The intrinsic value of the call is

a. $ 6

b. $40.

c. $46.

d. -$6.

(e) .$ 0.

25. At the CBOE, options trading is

a. through open outcry.

b. from a closed order book.

c. done only at the hour mark.

d. all done through computer matching.

26. The percentage of the premium that the buyer of a call option is allowed to borrow through margin is

a. 50.

b. 0.

c. 33.

d. 80.

27. A writer sells a covered call at $3 per share with a strike price of $65. If the stock price rises to $71 at expiration, what is the profit or loss to the writer?

a. $6

b. $2

c. -$2

d. -$6

28. An important assumption of put-call parity is that

a. both options may have different exercise prices but the same expiration dates

b. both options have the same exercise prices and the same expiration dates

c. both options will produce the same payoff on the stock as well as a risky bond

d. both options will produce the same payoff on the stock as well as another risky asset.