1. Which of the following statements is true?
   1. In the US options markets all options on individual stocks are American-style options and most options on stock market indices are European-style options. In European options markets, options on individual stocks can be either European-style or American-style options.
   2. In the US options markets all options on individual stocks are American-style options and most options on stock market indices are European-style options. In European options markets, options on individual stocks are only European style.
   3. In the European options markets all options on individual stocks are American-style options and most options on stock market indices are American-style options. In the US options markets, options on individual stocks can be either European-style or American-style options.
   4. In the European options markets all options on individual stocks are European-style options and most options on stock market indices are American-style options. In US options markets, options on individual stocks are only American-style options.

Answer:______

1. Which of the following statements is true for options buyers and writers?
   1. Company A can hedge or insure its exposure to a commodity price by entering into a contract that would give it the right to buy a certain amount of the commodity at a certain price in a certain period of time. Company A is the buyer or holder of the option and pays an option premium upfront. Company As supplier is the seller or writer of the option and collects the premium upfront. Company A is referred to as a short call, while the suppliers position is referred to as a long call.
   2. Company A can hedge or insure its exposure to a commodity price by entering into a contract that would give it the right to buy a certain amount of the commodity at a certain price in a certain period of time. Company A is the buyer or holder of the option and pays an option premium upfront. Company As supplier is the seller or writer of the option and collects the premium upfront. Company A is referred to as a long call, while the suppliers position is referred to as a short call.
   3. Company A can hedge or insure its exposure to a commodity price by entering into a contract that would give it the right to buy a certain amount of the commodity at a certain price in a certain period of time. Company A is the buyer or holder of the option and receives an option premium upfront. Company As supplier is the seller or writer of the option and pays the premium upfront. Company A is referred to as a long call, while the suppliers position is referred to as a short call.
   4. Company A can hedge or insure its exposure to a commodity price by entering into a contract that would give it the right to buy a certain amount of the commodity at a certain price in a certain period of time. Company A is the buyer or holder of the option and receives an option premium upfront. Company As supplier is the seller or writer of the option and pays the premium upfront. Company A is referred to as a short call, while the suppliers position is referred to as a long call.

Answer:______

1. Which of the following statements is true for the value of a European call when the price of the underlying stock changes?
   1. The lower the stock price, the more valuable the call on that stock because the call allows the holder to buy the stock at the fixed exercise price and the higher the stock price, the lower the profit when the call is exercised.
   2. The lower the stock price, the more valuable the call on that stock because the call allows the holder to buy the stock at the fixed exercise price and the higher the stock price, the higher the profit when the call is exercised.
   3. The higher the stock price, the more valuable the call on that stock because the call allows the holder to buy the stock at the fixed exercise price and the higher the stock price, the lower the profit when the call is exercised.
   4. The higher the stock price, the more valuable the call on that stock because the call allows the holder to buy the stock at the fixed exercise price and the higher the stock price, the higher the profit when the call is exercised.

Answer:______

1. Which of the following statements is NOT true for a call option?
   1. When the stock price is lower than the options exercise price, the call is said to be out of the money.
   2. When the stock price is equal to the exercise price, the call is said to be at the money.
   3. If the stock price is above the exercise price, the call is said to be in the money.
   4. The intrinsic value of a call is the profit a call seller would make if the call could be exercises immediately.

Answer:______.

1. Which of the following statements is NOT true for a call option?
   1. If the stock price is significantly higher than the exercise price, the call is said to be deep in the money.
   2. If the stock price is significantly lower than the exercise price, the call is said to be deep out of the money.
   3. When the call intrinsic value is negative, the call holder must exercise the call.
   4. If the stock price is equal to or lower than the exercise price, the calls intrinsic value is zero.

Answer:______.

1. Which of the following statements is true?
   1. American calls on non-dividend-paying stocks, although they give the holder the right to exercise early, are not worth more than their European counterparts because they will not be exercised earlier.
   2. American puts on non-dividend-paying stocks, although they give the holder the right to exercise early, are not worth more than their European counterparts because they will not be exercised earlier.
   3. European calls on non-dividend-paying stocks, although they give the holder the right to exercise early, are not worth more than their American counterparts because they will not be exercised earlier.
   4. European puts on non-dividend-paying stocks, although they give the holder the right to exercise early, are not worth more than their American counterparts because they will not be exercised earlier.

Answer:______

1. Which of the following statements is NOT true for a put option?
   1. The intrinsic value of the put is its exercise price less the stock price.
   2. When the stock price is below the exercise price, the puts intrinsic value is positive because if the holder could exercise the put, he would sell the stock to the put writer for the exercise price.
   3. As the stock price goes to zero, the put becomes less valuable and its value converges towards the puts intrinsic value.
   4. When the put price is above the exercise price, the puts intrinsic value is zero because the holder of a put will not exercise the option to sell the stock at the exercise price, when he can sell it at a higher price in the market.

Answer:______

1. Which of the following is true?
   1. The right to exercise a put before its expiration day is valuable and consequently, the price of a European put on a non-dividend-paying stock is higher than that of an equivalent American put.
   2. The right to exercise a put before its expiration day is valuable and consequently, the price of a European put on a non-dividend-paying stock is the same as that of an equivalent American put.
   3. The right to exercise a put before its expiration day is valuable and consequently, the price of an American put on a non-dividend-paying stock is higher than that of an equivalent European put.
   4. The right to exercise a put before its expiration day is valuable and consequently, the price of an American put on a non-dividend-paying stock is the same as that of an equivalent European put.

Answer:______

1. The price of a European call or put option on a non-dividend-paying stock can be calculated using a formula based on the Black-Scholes option pricing model. There are five variables or inputs in this formula. Which of these variables must be estimated?
   1. The current price of the stock on which the option is written
   2. The volatility of the underlying stock measured by the annual standard deviation of the stocks continuous returns
   3. The exercise or strike price of the option
   4. The time until the option expires

Answer:______

1. Which of the following statements is NOT true for an underlying stock that does not pay dividends during the life of the option?
   1. An American call on a non-dividend-paying stock must have the same price as its European counterpart because it is not optimal to exercise an American call on a non-dividend-paying stock before its expiration date.
   2. The Black-Scholes formula also provides the value of an American call on a stock that does not pay dividends during the life of the call.
   3. There are circumstances under which it is optimal to exercise an American put on a non-dividend-paying stock before it expires. The American put on a non- dividend-paying-stock can sometimes be more valuable than its European counterpart.
   4. The Black-Scholes put formula only gives an upper bound on the value of an American pot on a non-dividend-paying stock.

Answer:______.

1. Which of the following is NOT true for the price of a European option on a non-dividend-paying stock?
   1. When the stock price increases, the call price rises because the calls intrinsic value increases and the put price falls because the puts intrinsic value decreases.
   2. When the stock volatility increases, both the call and the put prices decrease, because a higher volatility decreases the chance that the stock price will rise above the exercise price in the case of calls or will fall below the exercise price in the case of puts.
   3. When the exercise price increases, the call price fails because the calls intrinsic value decreases and the put price rises because the puts intrinsic value increases.
   4. When the risk-free rate increases, the call price rises and the put price falls because the present value of the exercise price increases, making the call more valuable and the put less valuable.

Answer:______.

1. When an investor buys calls on a stock instead of the stock itself, and the value of the calls bought is equal to the stock price, this strategy is called?
   1. Covered calls
   2. Naked calls
   3. Long straddles
   4. None of the above

Answer:______

1. When an investor buys stock-index puts, this strategy is called?
   1. Protective puts
   2. Long straddles
   3. Spreads
   4. Portfolio insurance

Answer:______

1. Which of these securities do NOT have obvious option features?
   1. Common stocks
   2. Right issues
   3. Warrants
   4. Callable bonds

Answer:______

1. Which of the following securities can be seen as straight bonds with embedded options?
   1. Rights issues
   2. Warrants
   3. Contingent value rights
   4. Callable bonds

Answer:______