ch 18

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

1. Based on the Black-Scholes option valuation model, an increase in the price of the underlying stock __________ the value of a call option.

2. Based on the Black-Scholes option valuation model, an increase in interest rates __________ the value of a call option.

3. Based on the Black-Scholes option valuation model, a decrease in the variability of a stocks return __________ the value of a call option.

4. As the probability that an option will have positive intrinsic value diminishes, the value of a call option __________.

5. The expensing of employee stock options __________ a firms earnings.

6. As the price of a stock declines, the maximum loss from the covered put strategy __________.

7. If the price of a stock increases, the maximum loss from the protective call strategy __________.

8. If an investor constructs a straddle in which the individual buys a put and a call, the potential gain increases as the price of the stock __________ or __________.

9. An increase in the price of a stock __________ the loss to an investor who sells a straddle (i.e., sells a put and a call).

10. If an investor constructs a collar, additional increases in the price of the stock __________ the initial gain on the stock.

11. An increase in the VIX implies __________ in the volatility of stock prices.

12. An increase in short-term interest rates __________ an options strike price.

ANSWER!!!

1. increases 2. increases 3. decreases 4. decreases 5. decreases 6. is not affected (no change) 7. is not affected (no change) 8. increases, decreases 9. increases 10. do not affect (no change) 11. increase 12. does not affect (no change)