Chapter 20 - Options Markets: Introduction
Chapter 20
Options Markets: Introduction
Multiple Choice Questions
1. The price that the buyer of a call option pays to acquire the option is called the E. premium
2. The price that the writer of a call option receives to sell the option is called the E. premium
3. The price that the buyer of a put option pays to acquire the option is called the E. premium
4. The price that the writer of a put option receives to sell the option is called the A. premium
5. The price that the buyer of a call option pays for the underlying asset if she executes her option is called the A. strike price B. exercise price
6. The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the A. strike price B. exercise price
7. The price that the buyer of a put option receives for the underlying asset if she executes her option is called the A. strike price B. exercise price
8. The price that the writer of a put option receives for the underlying asset if the option is exercised depends on the market price at the time.
9. An American call option allows the buyer to
B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration.
10. A European call option allows the buyer to
C. sell the option in the open market prior to expiration.
D. buy the underlying asset at the exercise price on the expiration date.
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Chapter 20 - Options Markets: Introduction
11. An American put option allows the holder to
B. sell the underlying asset at the striking price on or before the expiration date.
C. potentially benefit from a stock price decrease with less risk than short selling the stock.
12. A European put option allows the holder to
C. potentially benefit from a stock price decrease with less risk than short selling the stock. D. sell the underlying asset at the striking price on the expiration date.
13. An American put option can be exercised A. any time on or before the expiration date.
14. An American call option can be exercised
A. any time on or before the expiration date.
15. A European call option can be exercised
B. only on the expiration date.
16. A European put option can be exercised
B. only on the expiration date.
17. To adjust for stock splits
A. the exercise price of the option is reduced by the factor of the split and the number of option held is increased by that factor.
18. All else equal, call option values are lower
C. for high dividend payout policies. 19. All else equal, call option values are higher B. for low dividend payout policies.
20. The current market price of a share of AT&T stock is $50. If a call option on this stock has a strike price of $45, the call B. is in the money.
C. sells for a higher price than if the market price of AT&T stock is $40.
21. The current market price of a share of Boeing stock is $75. If a call option on this stock has
a strike price of $70, the call B. is in the money.
C. sells for a higher price than if the market price of Boeing stock is $70.
22. The current market price of a share of CSCO stock is $22. If a call option on this stock has a strike price of $20, the call B. is in the money.
C. sells for a higher price than if the market price of CSCO stock is $21.
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Chapter 20 - Options Markets: Introduction
23. The current market price of a share of Disney stock is $30. If a call option on this stock has a strike price of $35, the call
A. is out of the money.24. The current market price of a share of CAT stock is $76. If a call option on this stock has a strike price of $76, the call C. is at the money.
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Chapter 20 - Options Markets: Introduction
25. A put option on a stock is said to be out of the money if B. the exercise price is less than the stock price.
26. A put option on a stock is said to be in the money if A. the exercise price is higher than the stock price.
27. A put option on a stock is said to be at the money if C. the exercise price is equal to the stock price.
28. A call option on a stock is said to be out of the money if A. the exercise price is higher than the stock price.
29. A call option on a stock is said to be in the money if B. the exercise price is less than the stock price.
30. A call option on a stock is said to be at the money if C. the exercise price is equal to the stock price.
31. The current market price of a share of JNJ stock is $60. If a put option on this stock has a strike price of $55, the put A. is in the money. B. is out of the money.
32. The current market price of a share of a stock is $80. If a put option on this stock has a strike price of $75, the put B. is out of the money.
C. sells for a higher price than if the market price of the stock is $75.
33. The current market price of a share of a stock is $20. If a put option on this stock has a strike price of $18, the put A. is out of the money.
C. sells for a higher price than if the strike price of the put option was $23.
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Chapter 20 - Options Markets: Introduction
34. The current market price of a share of MOT stock is $15. If a put option on this stock has a strike price of $20, the put A. is out of the money.
35. The current market price of a share of PALM stock is $75. If a put option on this stock has a strike price of $79, the put B. is in the money.
C. can be exercised profitably.
36. The current market price of a share of AT&T stock is $50. If a put option on this stock has a strike price of $45, the put A. is out of the money.
C. sells for a lower price than if the market price of AT&T stock is $40.
37. The current market price of a share of Boeing stock is $75. If a put option on this stock has a strike price of $70, the put A. is out of the money.
38. The current market price of a share of CSCO stock is $22. If a put option on this stock has a strike price of $20, the put A. is out of the money.
C. sells for a higher price than if the strike price of the put option was $25.
39. The current market price of a share of Disney stock is $30. If a put option on this stock has a strike price of $35, the put A. is out of the money.
40. The current market price of a share of CAT stock is $76. If a put option on this stock has a strike price of $80, the put B. is in the money.
C. can be exercised profitably.
41. Lookback options have payoffs that
A. have payoffs that depend in part on the minimum or maximum price of the underlying asset during the life of the option.
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