Help with the questions below: Question 1

There are two calls on the same stock. Both expire in 6 months and are identical in every way except the exercise price. If Call A has an exercise price of $40 and Call B has an exercise price of $50, which call will have a higher price?

A.	Call A
B.	Call B
C.	Cannot be determined

Question 2

If the present value of the exercise price is $20, the call option is selling for $5, and the market price of the stock is $22. If the put is selling for $5, should you buy it? Why or why not?

A.	Yes, you will make $2
B.	No, you will lose $3
C.	No, you will lose $2
D.	Yes, you will make $3

Question 3

Suppose you have written both a put and a call on the same stock with the same exercise price and the same expiration date (so you are short both options). You are best off if the stock price on the expiration date is

A.	Below the exercise price
B.	Equal to the exercise price
C.	Above the exercise price

Question 4

A decrease in ____ will decrease the price of both a call and a put on the same stock

A.	Stock price
B.	Exercise price
C.	Volatility
D.	Dividends

Question 5

Which of the following is an example of a real option?

A.	Foothold in an expanding market
B.	End a project early
C.	Wait for better market conditions
D.	All of these are real options

Question 6

You buy 27 call contracts with an exercise price of $80. The current price of the stock is $81. The ask price is $1.33 per contract. What is the cost of the option?

Question 7

The minimum option value

A.	speculative value
B.	intrinsic value
C.	option price

Question 8 Risk-neutral valuation is one way to estimate the value of the option before maturity

True

False

Question 9

If you are long the option, then you can choose whether to exercise or not.

True

False

Question 10

A put has an exercise price of $12 and 9 months to maturity. The stock price is $10. Find the intrinsic value. If the option price is $2.75, what is the speculative value?

A.	Intrinsic = 2; speculative = .75
B.	Intrinsic = 2; speculative = 2.75
C.	Intrinsic = 0; speculative = 2.75
D.	Intrinsic = 0; speculative = .75