FIN 307 - CH. 15 Zhang

You purchase one MBI July 120 Call contract for a $5 premium. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a __________ on the investment. A. $200 profit B. $200 loss C. $300 profit D. $300 loss

B. $200 loss

All else the same, an American-style option will be __________ valuable than a __________-style option. A. More; European B. Less; European C. More; Canadian D. Less; Canadian

A. More; European

You purchase one MBI July 120 Put contract for a $3 premium. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a __________ on the investment. A. $300 profit B. $300 loss C. $500 loss D. $200 profit

B. $300 loss

The writer of a put option __________. A. Agrees to sell shares at a set price if the option holder desires B. Agrees to buy shares at a set price if the option holder desires C. Has the right to buy shares at a set price D. Has the right to sell shares at a set price

B. Agrees to buy shares at a set price if the option holder desires

A call option on Brocklehurst Corp has an exercise price of $30. Brocklehurst Corp's current stock price is $32. The call option is __________. A. At-the-money B. In-the-money C. Out-of-the-money D. Knocked in

B. In-the-money

You purchase one MBI March 120 Put contract for a $10 premium. The maximum profit that you could gain from this strategy is __________. A. $120 B. $1,000 C. $11,000 D. $12,000

C. $11,000

You invest in the stock of Valleyview Corp and purchase a put option on Valleyview Corp. This strategy is called a __________. A. Long straddle B. Naked put C. Protective put D. Short stroll

C. Protective put

The maximum loss a buyer of a stock call option can suffer is the __________. A. Call premium B. Stock price C. Stock price minus the value of the call D. Strike price minus the stock price

A. Call premium

You write one MBI July 120 Call contract for a $4 premium. You hold the option until the expiration date, when MBI stock sells for $121 per share. You will realize a __________ on the investment. A. $300 profit B. $200 loss C. $600 loss D. $200 profit

A. $300 profit

You invest in the stock of Rayleigh Corp and write a call option on Rayleigh Corp. This strategy is called a __________. A. Covered call B. Long straddle C. Naked call D. Money spread

A. Covered call

A writer of a call option will want the value of the underlying asset to __________, and a buyer of a put option will want the value of the underlying asset to __________. A. Decrease; Decrease B. Decrease; Increase C. Increase; Decrease D. Increase; Increase

A. Decrease; Decrease

An investor purchases a call at a $2.50 premium. The strike price is $35. If the current stock price is $35.10, what is the break-even point for the investor? A. $32.50 B. $35 C. $37.50 D. $37.60

C. $37.50

You sell one IBM July 90 Call contract for a $4 premium and two puts for a $3 premium each. You hold the position until the expiration date, when IBM stock sells for $95 per share. You will realize a __________ on this strip. A. $300 profit B. $100 loss C. $500 profit D. $200 profit

C. $500 profit

The May 17, 2017 price quotation for a Boring call option with a strike price of $50 due to expire in November is $20.80, while the stock price of Boring is $69.80. The premium on one Boring November 50 Call contract is __________. A. $1,980 B. $4,900 C. $5,000 D. $2,080

D. $2,080

The potential loss for a writer of a naked call option on a stock is __________. A. Equal to the call premium B. Larger the lower the stock price C. Limited D. Unlimited

D. Unlimited

An investor is bearish on a particular stock and decided to buy a put with a strike price of $25. Ignoring commissions, if the option was purchased for a price of $0.85, what is the break-even point for the investor? A. $24.15 B. $25 C. $25.87 D. $27.86

A. $24.15

You purchase one MBI July 90 Call contract for a $4 premium. The stock has a 2-for-1 split prior to the expiration date. You hold the option until the expiration date, when MBI stock sells for $48 per share. You will realize a __________ on the investment (hint: after split, you essentially have 2 call contracts with X = $45 at a $2 premium). A. $300 profit B. $100 loss C. $400 loss D. $200 profit

D. $200 profit

Which of the following strategies makes a profit when the stock price declines and loses money when the stock price increases? A. Long call and short put B. Long call and long put C. Short call and short put D. Short call and long put

D. Short call and long put

A put option on Dr Pepper Snapple Group, Inc has an exercise price of $45. The current stock price is $41. The put option is __________. A. At-the-money B. In-the-money C. Out-of-the-money D. Knocked out

B. In-the-money