Investments 12

The value of a listed call option on a stock is lower when: I. The exercise price is higher. II. The contract approaches maturity. III. The stock decreases in value. IV. A stock split occurs.

1,2, and 3

All else the same, an American-style option will be ______ valuable than a ______ style option

More European

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

What combination of puts and calls can simulate a long stock investment? a) long call and short put b) long call and long put c) short call and short put d) short call and long put

a) long call and short put

When issued, most convertible bonds are issued _____________. a) deep in the money b) deep out of the money c) slightly out of the money d) slightly in the money

b) deep out of the money

Investor A bought a call option, and investor B bought a put option. All else equal, if the interest rate increases, the value of investor A's position will ______ and the value of investor B's position will _______. a) increase; increase b) increase; decrease c) decrease; increase d) decrease; decrease

b) increase; decrease

A one-dollar increase in a stock's price would result in __________ in the call option's value of __________ than one dollar. a) a decrease; less b) a decrease; more c) an increase; less d) an increase; more

c) an increase; less

A high dividend payout will ______ the value of a call option and ______ the value of a put option. a) increase; decrease b) increase; increase c) decrease; increase d) decrease; decrease

c) decrease; increase

Investor A bought a call option that expires in 6 months. Investor B wrote a put option with a 9-month maturity. All else equal, as the time to expiration approaches, the value of investor A's position will _______ and the value of investor B's position will _______. a) increase; increase b) increase; decrease c) decrease; increase d) decrease; decrease

c) decrease; increase

If the Black-Scholes formula is solved to find the standard deviation consistent with the current market call premium, that standard deviation would be called the _______. a) variability b) volatility c) implied volatility d) deviance

c) implied volatility

You write a put option on a stock. The profit at contract maturity of the option position is ___________, where X equals the option's strike price, ST is the stock price at contract expiration, and P0 is the original premium of the put option. a) max (P0, X - ST - P0) b) min (-P0, X - ST - P0) c) min (P0, ST - X + P0) d) max (0, ST - X - P0)

c) min (P0, ST - X + P0)

The value of a call option increases with all of the following except ___________. a) stock price b) time to maturity c) volatility d) dividend yield

d) dividend yield