Question 1 An investor buys a European put on a share for $1. The stock price is currently $21 and the strike price is $17.
Ten multiple choice Finance questions:
Question 1
An investor buys a European put on a share for $1. The stock price is currently $21 and the strike price is $17. When does the investor make a profit?
| A. Price is less than $20 |
| B. Price is less than $17 |
| C. Price is less than $16 |
Flag this QuestionQuestion 2
Suppose a European call option to buy a share for $22.00 costs $1.50. The stock currently trades for $19.00. If the option is held to maturity under what conditions does the holder of the option make a profit? Note: ignore time value of money.
| A. When the price of the stock is greater than $22.00. |
| B. When the price of the stock is greater than $23.50. |
| C. When the price of the stock is greater than $20.50. |
Flag this QuestionQuestion 3
The market price of ZYX stock has been volatile and you expect that volatility to continue for a few weeks based on recent news. Due to this belief you decide to purchase calls and puts to manage your exposure. You purchase a one-month call option with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option with a strike price of $25 and an option price of $0.50. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire?
| A. -$180 |
| B. $40 |
| C. -$140 |
Flag this QuestionQuestion 4
Use two-state option pricing model to find the value of a call option and the intrinsic value given the following parameters:
| T-bills yield: | 4.0 pct. |
| Current stock price: | $44.00 |
| No possibility stock will be worth less this amount in one year: | $42.00 |
| Exercise Price: | $34.00 |
| A. Value of call = $11.31, Intrinsic Value = $2.00 |
| B. Value of call = $11.31, Intrinsic Value = $10.00 |
| C. Value of call = $9.31, Intrinsic Value = $10.00 |
Flag this QuestionQuestion 5
Given the following option quote information: | ||||||
Calls | Puts | |||||
Option and NY Close | Expiration | Strike Price | Volume | Last | Volume | Last |
XYZ | ||||||
February | 112 | 85 | 7.55 | 40 | 0.60 | |
March | 112 | 61 | 8.55 | 22 | 1.55 | |
May | 112 | 22 | 10 | 11 | 2.85 | |
August | 112 | 3 | 12.5 | 3 | 4.70 |
The current stock price is $111.00 and the stock price on the expiration date is $125.00. How much is your options investment worth? (ignore commissions)
| A. $13,000.00 |
| B. $130.00 |
| C. $14,000.00 |
Flag this QuestionQuestion 6
Given the following parameters use put-call parity to determine the price of a put option with the same exercise price.
| Current stock price: | $22.00 |
| Call option exercise price: | $25.00 |
| Sales price of call options: | $3.80 |
| Months until expiration of call options: | 6 |
| Risk free rate: | 2.2 percent |
| Compounding: | continuous |
| A. Price of put option = $6.53 |
| B. Price of put option = $7.08 |
| C. Price of put option = $6.26 |
Flag this QuestionQuestion 7
Given the following parameters use risk-neutral valuation to value a call option.
| Current stock price: | $65.00 |
| Stock will increase or decrease next year by: | 15 pct. |
| Call Option strike price: | $60.00 |
| Time to expiration: | 1 year |
| Risk free rate: | 8 pct. |
| A. Value of call: $13.66 |
| B. Value of call: $9.44 |
| C. Value of call: $10.47 |
Flag this QuestionQuestion 8
A bond has 4 years to maturity, a coupon of 9 percent paid annually and currently sells at par. What is the duration of the bond?
| A. 3.53 years |
| B. 3.74 years |
| C. 4.90 years |
Flag this QuestionQuestion 9
You have entered into a forward contract with the following parameters:
| Bond: | 5 year, zero coupon bond |
| Issuance: | Will be issued in 1 year |
| Face Value: | $1000 |
| 1 year spot rate: | 3 pct. |
| 10 year spot rate: | 6 pct. |
| A. Forward price = $704.96 |
| B. Forward price = $726.11 |
| C. Forward price = $769.68 |
Flag this QuestionQuestion 10
Use Black Scholes to Value the put and call given the following criteria. The stock price six months from the expiration of an option is $13.50, the exercise price of the option is $13, the risk free interest rate is 10 percent per annum, and the volatility is 20% per annum.
| A. c = 1.09, p = 0.44 |
| B. c = 0.50, p = 0.63 |
| C. c = 1.43, p = 0.30 |
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Solution: Question 1 An investor buys a European put on a share for $1. The stock price is currently $21 and the strike price is $17.