Question 1

The volatility of a stock's price estimated from the stock's option is called ________.

Accepted Answer

A)   market volatility
B)   estimated variance
C)   a volatility skew
D)   implied standard deviation
E)   rho factorF) A) and D)
G) A) and C) D

Question 2

In Canada, __________ shows investor expectations about future stock market volatility.

Accepted Answer

A)   VIA
B)   POP
C)   OSC
D)   MVX
E)   VARF) B) and C)
G) A) and E)

Question 3

The measure of an option's price sensitivity to a change in the interest rate is __________.

Accepted Answer

A)   Gamma
B)   Rho
C)   Theta
D)   Beta
E)   VegaF) B) and E)
G) All of the above

Question 4

A stock is currently selling for $34. It pays no dividend and has an annualized standard deviation of 39 percent. The strike price is $35 and 3 months to maturity. The risk-free rate is 4.2 percent per annum.

-What is the delta of the put option?

Accepted Answer

A)   -0.50
B)   -0.42
C)   -0.38
D)   -0.32
E)   -0.28F) B) and C)
G) A) and E)

Question 5

Hedging a stock portfolio with stock options involves __________ options.

Accepted Answer

A)   Buying call
B)   Selling call
C)   Buying put
D)   Selling put
E)   Buying both call and putF) All of the above
G) C) and D) B

Question 6

The Black-Scholes-Merton model assumes __________ volatility.

Accepted Answer

A)   stochastic
B)   high
C)   low
D)   constant
E)   randomF) A) and D)
G) A) and B)

Question 7

Stock prices and put option prices are

Accepted Answer

A)   Unrelated
B)   Negatively correlated
C)   Directly related
D)   Perfectly related
E)   Inversely relatedF) D) and E)
G) C) and D)

Question 8

A call option that sells for $7.18 has a delta of 0.63. If the stock price decreases by $1.50, what is your estimate of the new call price?

Accepted Answer

A)   $6.86
B)   $6.24
C)   $6.55
D)   $6.37
E)   $6.64F) C) and E)
G) B) and C)

Question 9

A stock with a price of $72 has a dividend yield of 1 percent. There is a put option on the stock with a strike price of $75 that sells for $7.28 and has 49 days to maturity. If the risk-free rate is 5 percent, what is the implied standard deviation of the stock?

Accepted Answer

A)   48.27%
B)   55.06%
C)   42.86%
D)   30.15%
E)   37.29%F) B) and E)
G) C) and D)

Question 10

Which of the following is/are the same for a call option and a put option?
I. Rho
II. Theta
III. Beta
IV Vega

Accepted Answer

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

Question 11

You are managing a stock portfolio with a value of $50,000,000 and a beta of 1.15. The S&P 500 index is trading at 1,120. If the delta of the options is-0.48, how can you hedge your portfolio using put options?

Accepted Answer

A)   buy 1,070 contracts
B)   sell 1,130 contracts
C)   sell 1,070 contracts
D)   sell 1,095 contracts
E)   buy 1,130 contractsF) All of the above
G) A) and E)

Question 12

A call option has a delta of 0.48 and sells for $6.59. What is the estimate of the new call price if the stock price increases by $0.75?

Accepted Answer

A)   $6.83
B)   $6.72
C)   $7.01
D)   $7.07
E)   $6.95F) C) and E)
G) None of the above

Question 13

S&P 500 stock index options are settled:

Accepted Answer

A)   in cash.
B)   with a portfolio of stocks.
C)   with Spyders.
D)   in one of the above methods at the discretion of the option owner.
E)   None of the above.F) B) and E)
G) B) and D)

Question 14

Which of the following have the greatest effect on stock option prices?

Accepted Answer

A)   Stock price and delta
B)   Theta and delta
C)   Rho and exercise price
D)   Delta and vega
E)   Stock price and exercise priceF) A) and B)
G) B) and D) E

Question 15

The risk-free rate used in the Black-Scholes-Merton model is the:

Accepted Answer

A)   30-day Treasury bill.
B)   90-day Treasury bill.
C)   1-year Treasury bill.
D)   10-year Treasury bond.
E)   Treasury bill with the same maturity as the option.F) C) and D)
G) B) and E)

Question 16

Which of the following is/are false?  I.The volatility of the underlying stock.II.The risk-free rate.III.The time to expiration.IVThe strike price. Call−−++ Put−+−−\begin{array}{c}\begin{array}{lll}I. 	ext {The volatility of the underlying stock.}\II. 	ext {The risk-free rate.}\III. 	ext {The time to expiration.}\IV 	ext {The strike price.}\end{array}\begin{array}{c}	ext{ Call}\- \- \+ \+ \\end{array}\begin{array}{c}	ext{ Put}\- \+ \- \- \\end{array}\end{array}I.The volatility of the underlying stock.II.The risk-free rate.III.The time to expiration.IVThe strike price.​ Call−−++​ Put−+−−​​

Accepted Answer

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

Question 17

You own 1,200 shares of Banner Co. stock that is currently priced at $42 a share. Given this price, the option delta for a $40 call option on this stock is .664. How many $40 call options do you need to hedge against a-$1 change in the price of the stock?

Accepted Answer

A)   buy 1,613 options
B)   buy 1,713 options
C)   buy 1,8.7 options
D)   write 1,713 options
E)   write 1,807 optionsF) A) and B)
G) All of the above

Question 18

A call option with a strike price of $85 is currently trading at $6.17. The stock price is $86 and the risk-free rate is 5 percent. If the option has 48 days to maturity, what is the implied standard deviation?

Accepted Answer

A)   47.29%
B)   52.18%
C)   57.21%
D)   43.44%
E)   38.67%F) A) and E)
G) B) and C)

Question 19

You are managing a stock portfolio with a value of $100 million. The portfolio is unique in that the beta is-0.10. The S&P 500 is currently trading at 1,108. The delta of a call option on the index with a strike price of 1,150 has a delta of 0.52. How can you hedge your portfolio using call options?

Accepted Answer

A)   Buy 174 contracts
B)   Sell 167 contracts
C)   Buy 156 contracts
D)   Sell 174 contracts
E)   Buy 167 contractsF) A) and B)
G) A) and E)

Question 20

The dollar impact of a change in the underlying stock price on the value of a stock option is measured by __________.

Accepted Answer

A)   Gamma
B)   Delta
C)   Theta
D)   Beta
E)   VegaF) A) and E)
G) None of the above

Exam 15: Option Valuation

The volatility of a stock's price estimated from the stock's option is called ________.

Correct Answer
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D

In Canada, __________ shows investor expectations about future stock market volatility.

Correct Answer
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The measure of an option's price sensitivity to a change in the interest rate is __________.

Correct Answer
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A stock is currently selling for $34. It pays no dividend and has an annualized standard deviation of 39 percent. The strike price is $35 and 3 months to maturity. The risk-free rate is 4.2 percent per annum. -What is the delta of the put option?

Correct Answer
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Hedging a stock portfolio with stock options involves __________ options.

Correct Answer
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B

The Black-Scholes-Merton model assumes __________ volatility.

Correct Answer
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Stock prices and put option prices are

Correct Answer
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A call option that sells for $7.18 has a delta of 0.63. If the stock price decreases by $1.50, what is your estimate of the new call price?

Correct Answer
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A stock with a price of $72 has a dividend yield of 1 percent. There is a put option on the stock with a strike price of $75 that sells for $7.28 and has 49 days to maturity. If the risk-free rate is 5 percent, what is the implied standard deviation of the stock?

Correct Answer
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Which of the following is/are the same for a call option and a put option? I. Rho II. Theta III. Beta IV Vega

Correct Answer
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You are managing a stock portfolio with a value of $50,000,000 and a beta of 1.15. The S&P 500 index is trading at 1,120. If the delta of the options is-0.48, how can you hedge your portfolio using put options?

Correct Answer
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A call option has a delta of 0.48 and sells for $6.59. What is the estimate of the new call price if the stock price increases by $0.75?

Correct Answer
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S&P 500 stock index options are settled:

Correct Answer
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Which of the following have the greatest effect on stock option prices?

Correct Answer
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E

The risk-free rate used in the Black-Scholes-Merton model is the:

Correct Answer
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Correct Answer
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You own 1,200 shares of Banner Co. stock that is currently priced at $42 a share. Given this price, the option delta for a $40 call option on this stock is .664. How many $40 call options do you need to hedge against a-$1 change in the price of the stock?

Correct Answer
verified

A call option with a strike price of $85 is currently trading at $6.17. The stock price is $86 and the risk-free rate is 5 percent. If the option has 48 days to maturity, what is the implied standard deviation?

Correct Answer
verified

You are managing a stock portfolio with a value of $100 million. The portfolio is unique in that the beta is-0.10. The S&P 500 is currently trading at 1,108. The delta of a call option on the index with a strike price of 1,150 has a delta of 0.52. How can you hedge your portfolio using call options?

Correct Answer
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The dollar impact of a change in the underlying stock price on the value of a stock option is measured by __________.

Correct Answer
verified

Exam 15: Option Valuation

The volatility of a stock's price estimated from the stock's option is called ________.

Correct AnswerverifiedD

In Canada, __________ shows investor expectations about future stock market volatility.

Correct AnswerverifiedShow Answer

The measure of an option's price sensitivity to a change in the interest rate is __________.

Correct AnswerverifiedShow Answer

A stock is currently selling for $34. It pays no dividend and has an annualized standard deviation of 39 percent. The strike price is $35 and 3 months to maturity. The risk-free rate is 4.2 percent per annum. -What is the delta of the put option?

Correct AnswerverifiedShow Answer

Hedging a stock portfolio with stock options involves __________ options.

Correct AnswerverifiedB

The Black-Scholes-Merton model assumes __________ volatility.

Correct AnswerverifiedShow Answer

Stock prices and put option prices are

Correct AnswerverifiedShow Answer

A call option that sells for $7.18 has a delta of 0.63. If the stock price decreases by $1.50, what is your estimate of the new call price?

Correct AnswerverifiedShow Answer

A stock with a price of $72 has a dividend yield of 1 percent. There is a put option on the stock with a strike price of $75 that sells for $7.28 and has 49 days to maturity. If the risk-free rate is 5 percent, what is the implied standard deviation of the stock?

Correct AnswerverifiedShow Answer

Which of the following is/are the same for a call option and a put option? I. Rho II. Theta III. Beta IV Vega

Correct AnswerverifiedShow Answer

You are managing a stock portfolio with a value of $50,000,000 and a beta of 1.15. The S&P 500 index is trading at 1,120. If the delta of the options is-0.48, how can you hedge your portfolio using put options?

Correct AnswerverifiedShow Answer

A call option has a delta of 0.48 and sells for $6.59. What is the estimate of the new call price if the stock price increases by $0.75?

Correct AnswerverifiedShow Answer

S&P 500 stock index options are settled:

Correct AnswerverifiedShow Answer

Which of the following have the greatest effect on stock option prices?

Correct AnswerverifiedE

The risk-free rate used in the Black-Scholes-Merton model is the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You own 1,200 shares of Banner Co. stock that is currently priced at $42 a share. Given this price, the option delta for a $40 call option on this stock is .664. How many $40 call options do you need to hedge against a-$1 change in the price of the stock?

Correct AnswerverifiedShow Answer

A call option with a strike price of $85 is currently trading at $6.17. The stock price is $86 and the risk-free rate is 5 percent. If the option has 48 days to maturity, what is the implied standard deviation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The dollar impact of a change in the underlying stock price on the value of a stock option is measured by __________.

Correct AnswerverifiedShow Answer

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D

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B

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E

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