Suppose that you sell CDT short at $23 and at the same time you write a call option on CDT with a strike price of $15 and a premium of $2. What is the combined profit or loss on the two positions together if just prior to expiration of the call option the price of CDT is $21? Assume that you cover your short position (meaning you get rid of the short position) just prior to the time of option expiration.

	a.	($1)
	b.	$1
	c.	($2)
	d.	$0
	e.	$2

Which of the following statements about moneyness of call and put options is FALSE?

	a.	Put options are out-of-the-money when strike price < the underlying stock price.
	b.	Option writers (also called sellers) must make payments to option buyers whenever the buyer exercises in-the-money options.
	c.	Call options are in-the-money when strike price > the underlying stock price.
	d.	Put options are at-the-money when strike price = the underlying stock price.
	e.	An option buyer would be advised to exercise any call or put option that is in-themoney and about to expire.

Holding all else the same, the premium of a call option on common stock would decrease if: I. The price of the underlying stock increases. II. The volatility of the underlying stock increases. III. The time to expiration decreases.

	a.	I and II only
	b.	III only
	c.	I, II, and III
	d.	I only
	e.	I and III only

You buy a straddle on SD whose exercise price on the call and the put is $20. The premium on the call option is $0.15, and the premium on the put option is $11.00. Calculate the straddles profit or loss if just prior to expiration SDs stock price is $10 per share.

	a.	$11.15
	b.	($1.15)
	c.	$11.00
	d.	($11.15)
	e.	$1.15

Which of the following comes closest to the internal rate of return (IRR) of a project that requires an initial investment of $100 and produces TWO cash inflows: $100 at the end of year 3 and $160 at the end of year 10? The required rate of return for the project is 12%.

	a.	15.75%
	b.	4.81%
	c.	12.00%
	d.	6.05%
	e.	16.07%

You buy a call option on a stock for a premium of $1.00. The exercise price is $31.50. What is the options profit or loss if just prior to expiration the stock price is $32.50?

	a.	$0
	b.	$1.00
	c.	($0.50)
	d.	($1.00)
	e.	$0.50

You write a put on Kane with an exercise price of $3.50 and a premium of $1.00. At the same time you buy a call on Kane with an exercise price also at $3.50 and a premium of $1.25. Calculate the profit or loss on both positions simultaneously if just prior to option expiration Kanes stock price is $3.00.

	a.	($0.75)
	b.	($0.50)
	c.	$0.00
	d.	($1.75)
	e.	($1.25)

Which of the following comes closest to the profitability index (PI) of a project that requires an initial investment of $100 and produces a single cash flow of $160 at the end of year 10 if the required rate of return is 12%?

	a.	0.47
	b.	0.43
	c.	0.56
	d.	0.62
	e.	0.52

Which of the following values comes closest to the net present value of a project that requires an initial investment of $250 and produces cash flows of $60 per year for 10 consecutive years beginning at the end of year 5 (the cash flows go from the end of year 5 through the end of year 14)? The required rate of return is 12%?

	a.	($64.70)
	b.	$1.81
	c.	($17.23)
	d.	($50.32)
	e.	($34.55)