ch 17

They already come with answers, but you need to come up with your additional/complementary explanations on why the answer is correct.

1. An increase in a stocks price __________ the price of a call option and __________ the price of a put option.

2. With the passage of time, the time premium paid for a call option __________ and the time premium paid for a put option __________.

3. Purchasing a call option __________ risk to the buyer.

4. The use of leverage __________ when an individual buys a put option.

5. A decrease in a stocks price causes the price of a put option on that stock to __________ and the price of a call option to __________.

6. An increase in a stocks price __________ an options strike price.

7. If the price of a put option declines, that suggests the price of a call with the same strike price and expiration date __________.

8. The distribution of dividends __________ the price of a call option.

9. The writer of a covered call may sustain a loss if the price of the stock __________.

10. If an option buyers gains increase, that implies the writers losses __________.

11. An investor sells a stock short. If the price of the stock increases, the loss on the short position __________.

12. If an investor buys a put, the potential profit on the position increases as the price of the stock __________.

13. If an investor establishes a protective put position, the maximum possible loss __________ if the price of the stock falls.

14. As a stock market index declines, the value of an index call option and the value of an index put option __________.

15. A warrants price will decline if the price of the underlying stock __________.

16. When a call option is exercised, the number of shares the firm has outstanding __________.

ANSWER!!

1. increases, decreases 2. decreases, decreases 3. increases 4. increases 5. increase, decrease 6. does not affect (no change) 7. increases 8. decreases (The price of the stock declines on the ex-dividend date.) 9. decreases 10. increase 11. increases 12. decreases 13. is not affected (no change) 14. decreases, increases 15. decreases 16. is not affected (no change)