| | 5% per contract If the investor buys a bear spread, the individual anticipates | | higher interest rates | | | higher option prices | | | lower stock prices | | | lower put prices Question 5 Commodity contracts are | 1. | bought and sold through commodity exchanges | | 2. | considered to be speculative investments | | 3. | permit investors to take either long or short positions | | | | | 1 and 2 | | | 1 and 3 | | | 2 and 3 | | | all of these choices Question 6 If a call is overvalued, put-call parity suggests that the investor should | | sell the call and the stock and buy the put and the bond | | | sell the call and the bond and buy the put and the stock | | | sell the bond and the put and buy the stock and the call | | | sell the stock and the put and buy the call and the bond Question 7 A writer of a call option closes the position by | | purchasing the stock | | | selling the stock | | | purchasing the option | | | selling the option Question 8 According to the Black/Scholes option valuation model, the value of a call option increases if | | the option approaches expiration | | | the return on the stock is more certain | | | interest rates on a discounted bond decline | | | the standard deviation of the stock's return increases Question 9 The writer of a naked call option wants | | the prices of the stock and the call to rise | | | the prices of the stock and the call to fall | | | the prices of the stock to fall and the call to rise | | | the prices of the stock to rise and the call to remain stable Question 10 If an individual expected securities prices to fall, that investor could | 1. | buy put options | | 2. | sell a stock index futures contract | | 3. | sell stock short | | | | | 1 and 2 | | | 1 and 3 | | | 2 and 3 | | | all of these choices Question 11 Call options offer buyers | | potential leverage | | | liquidity | | | income | | | safety of principal Question 12 Options sell for a time premium over their intrinsic value because | | they earn dividends | | | they are debt obligations | | | they offer potential leverage | | | they are long-term investments Question 13 A put is an option to | | buy stock | | | receive stock | | | sell stock | | | receive dividends Question 14 If an investor constructs a covered call, | | there is no limit to the potential profit | | | risk is increased | | | risk is reduced | | | the term of the position is increased Question 15 To acquire a straddle, the investor | | buys stock and a call | | | buys two calls with different strike prices | | | buys a put and sells a call | | | buys a put and buys a call Question 16 A call is an option to | | sell stock at a specified price | | | buy stock at a specified price | | | deliver stock at a specified price | | | deliver bonds at a specified price Question 17 Which of the following is premised on lower stock prices? | | buying a stock index call | | | buying a stock index put | | | buying a stock and selling a call | | | buying a stock and selling a put Question 18 Futures contracts offer the advantage of | | potential leverage | | | liquidity | | | safety | | | tax savings Question 19 Because of arbitrage, the price of an option | | exceeds its intrinsic value | | | is less than its intrinsic value | | | cannot be less than its intrinsic value | | | cannot be greater than its intrinsic value Question 20 According to the Black/Scholes option valuation model, a call option's value decreases if | | interest rates increase as the option approaches expiration | | | the variability of the stock's return declines and the interest rate decreases | | | an increase in the price of the stock results in a two for one stock split | | | the option is exercised Question 21 Warrants are issued by | | individuals | | | firms | | | governments | | | investors Question 22 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 | | | | | 1 and 2 | | | 1 and 3 | | | 2 and 3 | | | all of these choices Which of the following assumes higher stock prices? | 1. | buying a stock index call | | 2. | buying a stock index put | | 3. | selling a stock index call | | 4. | selling a stock index put | | | | | 1 and 3 | | | 1 and 4 | | | 2 and 3 | | | 2 and 4 Question 24 Speculators who are short | | expect prices to rise | | | are not seeking capital gains | | | are hedging their long positions | | | anticipate lower prices Question 25 If the commodity's futures price declines | 1. | the long position profits | | 2. | the short position profits | | 3. | the buyer of the contract profits | | 4. | the seller of the contract profits | | | | | 1 and 3 | | | 1 and 4 | | | 2 and 3 | | | 2 and 4 | | | | | | | | | | | | | | | | | | | | | | |
