Question 1(8 points)

Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?

Question 1 options:

The higher the strike price on XYZ's options, the higher the option's price will be.

Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.

If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

The price of these call options is likely to rise if XYZ's stock price rises

Question 2(8 points)

Marti owns an option that allows him to purchase ABC stock at $50 a share. The $50 price is referred to as the:

Question 2 options:

opening price

intrinsic value

strike price

market price

time value

Question 3(8 points)

An option is a contract which gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time.

Question 3 options:

TrueFalse

Question 4(8 points)

You own a July $15 call on ABC stock. Assume today is April 20 and the call has zero intrinsic value. Which one of the following best describes this option?

Question 4 options:

worthless

unfunded

expired

in-the-money

out-of-the-money

Question 5(8 points)

If the current price of a stock is below the strike (exercise) price and there is still time before expiration, there will not be a premium in the market price of a call option on the stock.

Question 5 options:

TrueFalse

Question 6(10 points)

Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio's stock price actually dropped to $60, what would your pre-tax net profit be?

Question 6 options:

-$5.10

$19.90

$20.90

$22.50

Question 7(10 points)

The current price of a stock is $ 51.33 and the annual risk-free rate is 8.6 percent. A put option with an exercise price of $55 and one year until expiration has a current value of $ 6.79 . What is the value of a call option written on the stock with the same exercise price and expiration date as the put option? Show your answer to the nearest .01. Do not use $ or , in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Note, the given interest rate is an effective rate, so for calculation purposes, you need only discount the using the risk free rate, no e x adjustment is needed.Your Answer:

Question 7 options:

Answer

Question 8(10 points)

You sold three $35 call option contracts at a quoted price of $1.40. What is your net profit or loss on this investment if the price of the underlying asset is $38.10 on the option expiration date?

Question 8 options:

-$510

-$90

$90

$510

$930

Question 9(10 points)

Suppose you believe that Bennett Environmental's stock price is going to increase from its current level of $ 34.90 sometime during the next 7 months. For $ 420.67 you could buy a 7-month call option giving you the right to buy 100 shares at a price of $ 28 per share. If you bought a 100-share contract for $ 420.67 and Bennett's stock price actually changed to $ 29.31 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Your Answer:

Question 9 options:

Answer

Question 10(10 points)

Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?

Question 10 options:

-$3.10

$17.75

$16.90

$22.50

Question 11(10 points)

The current price of a stock is $ 62.48 and the annual effective risk-free rate is 4.1 percent. A call option with an exercise price of $55 and one year until expiration has a current value of $ 13.14 . What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Show your answer to the nearest .01. Do not use $ or , in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Hint, to find the present value of the bond, you do not need to make the e x adjustment, simple discount at the risk free rate.

Your Answer: