Question 1

Which one of the following inputs for the Black-Scholes model is NOT directly observable?

Accepted Answer

A)   time to option maturity
B)   risk-free interest rate
C)   stock price
D)   strike price
E)   stock price volatilityF) A) and D)
G) B) and E)

Question 2

What is the call option premium given the following information?

Accepted Answer

A)   $5.91
B)   $6.28
C)   $6.75
D)   $6.90
E)   $7.13F) A) and C)
G) B) and E)

Question 3

A stock is currently priced at $35 a share while the $40 put option is priced at $5.22.The put option delta is -0.14.What is the approximate put price if the stock increases in value to $38?

Accepted Answer

A)   $3.76
B)   $4.47
C)   $5.08
D)   $5.27
E)   $5.50F) A) and C)
G) C) and D)

Question 4

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -0.154.What is the call delta given these same variables?

Accepted Answer

A)   -1.154
B)   -0.846
C)   0.846
D)   1.154
E)   The answer cannot be determined based on the information provided.F) A) and D)
G) A) and C)

Question 5

You own 5,000 shares of Miller stock which is currently valued at $37 a share.The $40 put has a premium of $2.30 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

Accepted Answer

A)   buy 200 contracts
B)   buy 1,200 contracts
C)   buy 20,000 contracts
D)   write 200 contracts
E)   write 1,200 contractsF) B) and D)
G) B) and C)

Question 6

An employee stock option is which one of the following?

Accepted Answer

A)   call option
B)   covered call
C)   put option
D)   protective put
E)   index optionF) None of the above
G) A) and B)

Question 7

Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

Accepted Answer

A)   stock price volatility
B)   time to option maturity
C)   risk-free interest rate
D)   underlying stock price
E)   dividend yieldF) D) and E)
G) A) and B)

Question 8

Employee stock options grant an employee which one of the following rights?

Accepted Answer

A)   right to sell shares in an S&P 500 index fund
B)   right to buy shares in an S&P 500 index fund
C)   right to sell shares of the employer's stock
D)   right to buy shares of the employer's stock
E)   right to buy shares in the employer's retirement planF) A) and D)
G) C) and E)

Question 9

A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is 0.86.What is the approximate call price if the stock increases in value to $45?

Accepted Answer

A)   $0.12
B)   $0.26
C)   $0.96
D)   $1.98
E)   $2.08F) B) and E)
G) A) and B)

Question 10

Which one of the following best describes the graphical relationship between stock prices and option prices?

Accepted Answer

A)   linearity
B)   concavity
C)   convexity
D)   hyperbolic
E)   exponentialF) C) and E)
G) All of the above

Question 11

Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

Accepted Answer

A)   calculated alpha
B)   estimated variance
C)   implied theta
D)   VIX
E)   implied standard deviationF) A) and B)
G) B) and D)

Question 12

A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Accepted Answer

A)   $0.61
B)   $0.72
C)   $0.93
D)   $1.11
E)   $1.36F) B) and C)
G) A) and E)

Question 13

What is the put option premium given the following information?

Accepted Answer

A)   $3.62
B)   $4.23
C)   $4.47
D)   $4.89
E)   $5.01F) All of the above
G) A) and B)

Question 14

Which one of the following terms is used as a shortcut means of saying "time to maturity"?

Accepted Answer

A)   holder
B)   expiry
C)   timing
D)   elapsing
E)   datingF) All of the above
G) D) and E)

Question 15

What is the put option premium given the following information?

Accepted Answer

A)   $1.58
B)   $2.01
C)   $2.59
D)   $3.96
E)   $4.20F) None of the above
G) A) and E)

Question 16

An increase in which two of the following will have a negative effect on the value of a put option?
I.risk-free interest rate
II.time to option maturity
III.underlying stock price
IV.option strike price

Accepted Answer

A)   I and II only
B)   I and III only
C)   II and III only
D)   II and IV only
E)   III and IV onlyF) B) and C)
G) A) and B)

Question 17

Which one of the following is another term for implied volatility?

Accepted Answer

A)   implied delta
B)   implied standard deviation
C)   implied alpha
D)   implied beta
E)   implied gammaF) D) and E)
G) B) and D)

Question 18

Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio?
I.European style
II.American style
III.trade in whole or partial contracts
IV.cash settlement

Accepted Answer

A)   III only
B)   I and III only
C)   I and IV only
D)   II and III only
E)   II and IV onlyF) A) and D)
G) A) and C)

Question 19

What is the call option premium given the following information?

Accepted Answer

A)   $3.86
B)   $4.04
C)   $4.16
D)   $4.38
E)   $4.50F) None of the above
G) A) and B)

Question 20

A stock with a current price of $37 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 4 percent.What is the current value of a call option with a strike price of $40?

Accepted Answer

A)   $4.16
B)   $4.42
C)   $4.71
D)   $5.09
E)   $5.13F) A) and B)
G) A) and E)

Exam 16: Option Valuation

Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -0.154.What is the call delta given these same variables?

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Which one of the following is another term for implied volatility?

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Which one of the following inputs is included in the Black-Scholes-Merton model but not in the Black-Scholes model?

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A stock is currently priced at $35 a share while the $40 put option is priced at $5.22.The put option delta is -0.14.What is the approximate put price if the stock increases in value to $38?

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A stock with a current price of $37 will either move up by a factor of 1.20 or down by a factor of 0.80 each period over the next two periods.The risk-free rate of interest is 4 percent.What is the current value of a call option with a strike price of $40?

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Which one of the following terms is used as a shortcut means of saying "time to maturity"?

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Which one of the following is defined as an estimate of stock price volatility obtained from an option price?

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An employee stock option is which one of the following?

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What is the call option premium given the following information?

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Which one of the following best describes the graphical relationship between stock prices and option prices?

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Which two of the following are key to making SPX options an easy choice as a hedge against an equity portfolio? I.European style II.American style III.trade in whole or partial contracts IV.cash settlement

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What is the call option premium given the following information?

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What is the put option premium given the following information?

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A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is 0.86.What is the approximate call price if the stock increases in value to $45?

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An increase in which two of the following will have a negative effect on the value of a put option? I.risk-free interest rate II.time to option maturity III.underlying stock price IV.option strike price

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What is the put option premium given the following information?

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Employee stock options grant an employee which one of the following rights?

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A stock with a current price of $25 will either move up to $32 or down to $20 over the next period.The risk-free rate of interest is 3.5 percent.What is the value of a call option with a strike price of $30?

Correct AnswerverifiedShow Answer

You own 5,000 shares of Miller stock which is currently valued at $37 a share.The $40 put has a premium of $2.30 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

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Which one of the following inputs for the Black-Scholes model is NOT directly observable?

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