Question 1 (2.5 points) Selling a covered call option is comparable to selling a

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Question 1 (2.5 points)

Selling a covered call option is comparable to selling a stock short.

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Question 2 (2.5 points)

The intrinsic value of a call option is the strike price minus the stock's price.

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Question 3 (2.5 points)

An option's intrinsic value exceeds the option's price.

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Question 4 (2.5 points)

A warrant is an option issued by a corporation to buy its stock at a specified price within a specified time period.

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Question 5 (2.5 points)

Warrants are issued by

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Question 6 (2.5 points)

Since options offer potential leverage, they tend to sell for a time premium.

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Question 7 (2.5 points)

The intrinsic value of a put is the price of the stock minus the put's strike price.

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Question 8 (2.5 points)

The CBOE is
1. a secondary market in put and call options
2. a division of the SEC that regulated option trading
3. the first organized options exchange

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Question 9 (2.5 points)

Writing covered call options is more risky than writing naked call options

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Question 10 (2.5 points)

In addition to put and call options on individual stocks, there are also options on the market as a whole (i.e., an index).

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Question 11 (2.5 points)

The protective call strategy is an illustration of a short position.

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Question 12 (2.5 points)

To acquire a straddle, the investor

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Question 13 (2.5 points)

If a call is overvalued, put-call parity suggests that the investor should

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Question 14 (2.5 points)

Put-call parity suggests that

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Question 15 (2.5 points)

The hedge ratio is one piece of information given by the Black/Scholes option valuation model.

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Question 16 (2.5 points)

Put-call parity suggests that the sum of the prices of a stock, a call and a put on that stock, and a debt instrument maturing at the expiration of the options must equal zero.

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Question 17 (2.5 points)

According to the Black/Scholes option valuation model, the value of a call option rises as it approaches expiration.

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Question 18 (2.5 points)

According to the Black/Scholes option valuation model, a call option's value increases if

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Question 19 (2.5 points)

If the investor buys a bull spread, the individual anticipates

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Question 20 (2.5 points)

If the investor buys a bear spread, the individual anticipates

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Explanation / Answer

1) A

2) B

3) B

4)A

5)B

6)A

7)B

8)B

9) B

10) A

11) A

12) D

13) B

14) D

15) A

16) B

17) A

18) C

19) D

20) C

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