Question 1 (2.5 points)

Selling a covered call option is comparable to selling a stock short.

Question 1 options:

	a) True
	b) False

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Question 2 (2.5 points)

The intrinsic value of a call option is the strike price minus the stock's price.

Question 2 options:

	a) True
	b) False

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Question 3 (2.5 points)

An option's intrinsic value exceeds the option's price.

Question 3 options:

	a) True
	b) False

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Question 4 (2.5 points)

A warrant is an option issued by a corporation to buy its stock at a specified price within a specified time period.

Question 4 options:

	a) True
	b) False

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Question 5 (2.5 points)

Warrants are issued by

Question 5 options:

a)	individuals

b)

firms

c)	governments

d)

investors

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Question 6 (2.5 points)

Since options offer potential leverage, they tend to sell for a time premium.

Question 6 options:

	a) True
	b) False

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Question 7 (2.5 points)

The intrinsic value of a put is the price of the stock minus the put's strike price.

Question 7 options:

	a) True
	b) False

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Question 8 (2.5 points)

The CBOE is 1. a secondary market in put and call options 2. a division of the SEC that regulated option trading 3. the first organized options exchange

Question 8 options:

a)

1 and 2

b)

1 and 3

c)

2 and 3

d)	all of the above

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Question 9 (2.5 points)

Writing covered call options is more risky than writing naked call options

Question 9 options:

	a) True
	b) False

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Question 10 (2.5 points)

In addition to put and call options on individual stocks, there are also options on the market as a whole (i.e., an index).

Question 10 options:

	a) True
	b) False

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Question 11 (2.5 points)

The protective call strategy is an illustration of a short position.

Question 11 options:

	a) True
	b) False

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Question 12 (2.5 points)

To acquire a straddle, the investor

Question 12 options:

a)	buys stock and a call

b)	buys two calls with different strike prices

c)	buys a put and sells a call with the same strike price

d)	buys a put and buys a call with the same strike price

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Question 13 (2.5 points)

If a call is overvalued, put-call parity suggests that the investor should

Question 13 options:

a)	sell the call and the stock and buy the put and the bond

b)	sell the call and the bond and buy the put and the stock

c)	sell the bond and the put and buy the stock and the call

d)	sell the stock and the put and buy the call and the bond

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Question 14 (2.5 points)

Put-call parity suggests that

Question 14 options:

a)	the sum of the prices of a stock and a call equal zero

b)	the sum of the prices of a put and a call equal zero

c)	the sum of the prices of a stock, a call, a put, and a bond equal zero

d)	sum of the prices of a stock and a put must equal the sum of the prices of a call and a discounted bond with the maturity date as the expiration date of the options

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Question 15 (2.5 points)

The hedge ratio is one piece of information given by the Black/Scholes option valuation model.

Question 15 options:

	a) True
	b) False

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Question 16 (2.5 points)

Put-call parity suggests that the sum of the prices of a stock, a call and a put on that stock, and a debt instrument maturing at the expiration of the options must equal zero.

Question 16 options:

	a) True
	b) False

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Question 17 (2.5 points)

According to the Black/Scholes option valuation model, the value of a call option rises as it approaches expiration.

Question 17 options:

	a) True
	b) False

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Question 18 (2.5 points)

According to the Black/Scholes option valuation model, a call option's value increases if

Question 18 options:

a)	stock prices increase and interest rates decrease

b)	the time to expiration decreases and interest rates increase

c)	the variability of the stock's return increases and stock prices increase

d)	interest rates decrease and the variability of the stock's return increases

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Question 19 (2.5 points)

If the investor buys a bull spread, the individual anticipates

Question 19 options:

a)	higher call price

b)	higher stock prices

c)	lower stock prices

d)	lower call prices

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Question 20 (2.5 points)

If the investor buys a bear spread, the individual anticipates

Question 20 options:

a)	higher interest rates

b)	higher option prices

c)	lower stock prices

d)	lower put prices

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