1. What is the most likely hedge ratio for a call option that has a strike price of $50 while the underlying stock price is $30?

   		Close to 1.
   		Close to 0.
   		Positive.
   		Negative.

2. The exercise price of a put option is $30. The price of the corresponding (similar exercise price) call option is $4. Assume the underlying stock price is $28, the risk-free rate of interest is 3%, and there are 3 months until expiration. What should be the value of the put option according to the put-call parity?

   		$3.18
   		$4
   		$5
   		$5.78

3. A call option, which expires in 2 days, has a strike price of $40 while the underlying stock has a current price of $20. What is the most likely value of the N(d₁) in the Black Scholes option pricing model?

   		Close to 0.
   		Close to 1.
   		Close to 0.5.
   		There is not enough information to determine.

4. Which one of the following would tend to result in a lower value of a put option?

   		Interest rates are low.
   		The volatility of the underlying stock is high.
   		There is more time remaining until the option expires.
   		The strike price is low relative to the stock price.

5. Consider a European put option on a stock when the stock price is $50, the strike price is $60, the annual risk-free rate is 3%, the annual standard deviation is 30%, and the time to expiration is 3 months. What is the price of the put option according to the Black Scholes option pricing model if the stock does not pay dividends?

   		$8
   		$10
   		$12
   		$14

6. The intrinsic value of an out-of-the-money put option is______________.

   		negative
   		positive
   		zero
   		There is not enough information to determine.

7. There are two put options on the same stock. The price of the put option that has a shorter maturity and a lower strike price must be ______________ the price of the other put option.

   		similar to
   		lower than
   		higher than
   		Not enough informa

8. How would the value of the N(d₁) in the Black Scholes option pricing model be affected if there is less time left before expiration for the call option while there is an increase in the price of the underlying stock?

   		Go down.
   		No change.
   		Go up.
   		There is not enough information to determine.

9. The current stock price of Fast Computer is $26. The price of its September call option with a strike price of $25 is $3. How would the option's price change if there is an increase in the T-Bills interest rate?

   		No change.
   		Go down.
   		Go up.
   		Can't be determined.

10. Which of the following is correct concerning the put-call parity?

    		Call price must be smaller than put price.
    		Call price must be greater than put price.
    		C + P = S0 + Xe-rT
    		C - S0 = P - Xe-rT

11. The implied volatility of an option is the ______________ that is consistent with the option's current market value.

    		standard deviation of the option returns
    		standard deviation of the underlying stock returns
    		standard deviation of the T-bills returns
    		All of the above are correct.

12. Consider a European call option on a stock when the stock price is $50, the strike price is $40, the annual risk-free rate is 3%, the annual standard deviation is 30%, and the time to maturity is 3 months. What is the price of the call option according to the Black Scholes option pricing model if the stock does not pay dividends?

    		$10.5
    		$12.2
    		$14.5
    		$20

13. Before expiration, the time value of a call option is equal to ______________.

    		The strike price of the call - The intrinsic value of the call
    		The call price - The stock price
    		The call price - The intrinsic value of the call
    		The strike price of the call - The stock price