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Option Valuation

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Question 1
Free
Multiple Choice

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

Choose correct answer/s
A

holder

B

expiry

C

timing

D

elapsing

E

dating

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Question 2
Free
Multiple Choice

Delta measures the dollar impact of a change in which one of the following on the value of a stock option?

Choose correct answer/s
A

volatility of the underlying stock price

B

risk-free interest rate

C

underlying stock price

D

option strike price

E

time to maturity

Check answer
Question 3
Free
Multiple Choice

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

Choose correct answer/s
A

calculated alpha

B

estimated variance

C

implied theta

D

VIX

E

implied standard deviation

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Question 4
Free
Multiple Choice

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

Choose correct answer/s
A

implied delta

B

implied standard deviation

C

implied alpha

D

implied beta

E

implied gamma

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Question 5
Free
Multiple Choice

VIX represents the volatility index on which one of the following?

Choose correct answer/s
A

Wilshire 3000 index

B

DJIA

C

S&P 500 index

D

Dow Jones Transportation average

E

NASDAQ 100

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Question 6
Multiple Choice

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

Choose correct answer/s
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 plan
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Question 7
Multiple Choice

You know that a call will finish in-the-money.Based on that single piece of information,you also know which one of the following?

Choose correct answer/s
A
The stock price will equal the strike price at expiration.
B
The risk-free rate is zero percent.
C
A put on the same underlying asset with the same strike and expiration will finish out-of-the-money.
D
The strike price will exceed the stock price at expiration.
E
The price of the call is equal to the price of the put.
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Question 8
Multiple Choice

Which one of the following statements is correct concerning the Black-Scholes option pricing model?

Choose correct answer/s
A
The model assumes a stock pays a constant annual dividend.
B
The model expresses time in terms of years.
C
The model is based on American-style options.
D
The model assumes that the current stock price is equal to the strike price.
E
The model assumes the put is in-the-money.
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Question 9
Multiple Choice

Which one of the following variables is NOT included in the Black-Scholes option pricing model?

Choose correct answer/s
A
strike price
B
time remaining until option expiration
C
stock volatility as measured by standard deviation
D
stock price
E
market rate of return
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Question 10
Multiple Choice

Which two of the following have the greatest effect on stock option prices?
I)volatility of underlying stock price
II)time to option maturity
III)underlying stock price
IV)option strike price

Choose correct answer/s
A
I and II only
B
I and IV only
C
II and III only
D
II and IV only
E
III and IV only
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Question 11
Multiple Choice

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

Choose correct answer/s
A
I and II only
B
I and III only
C
II and III only
D
II and IV only
E
III and IV only
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Question 12
Multiple Choice

An increase in which one of the following will have a negative effect on the price of a call option?

Choose correct answer/s
A
option strike price
B
time remaining to option expiration
C
underlying stock price
D
volatility of the underlying stock price
E
risk-free interest rate
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Question 13
Multiple Choice

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

Choose correct answer/s
A
linearity
B
concavity
C
convexity
D
hyperbolic
E
exponential
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Question 14
Multiple Choice

Which of the following will result from a decrease in an option's strike price?
I)increase in call option price
II)decrease in call option price
III)increase in put option price
IV)decrease in put option price

Choose correct answer/s
A
I only
B
I and III only
C
I and IV only
D
II and III only
E
II and IV only
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Question 15
Multiple Choice

Which one of the following statements concerning the relationship between time to option maturity and call and put prices is correct?

Choose correct answer/s
A
Put and call prices increase at the same rate as the time to option maturity increases.
B
Put prices and time to maturity are inversely related.
C
Call prices tend to increase faster than put prices as the time to option maturity increases.
D
Put prices increase while call prices remain constant as the time to option maturity increases.
E
Call prices are inversely related to time to maturity.
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Question 16
Multiple Choice

Which one of the following statements concerning the relationship between the volatility of the underlying stock price,as measured by sigma,and call and put prices is correct?

Choose correct answer/s
A
Call and put prices react fairly similarly in response to changes in sigma.
B
Call prices increase and put prices decrease as sigma increases.
C
Put price increase and call prices decrease as sigma increases.
D
Call prices increase and put prices remain relatively constant and sigma increases.
E
Neither put nor call prices are affected by changes in sigma.
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Question 17
Multiple Choice

Which option price(s)will increase when the interest rate increases?

Choose correct answer/s
A
both the call and put
B
call only
C
put only
D
neither the call nor the put
E
Answer cannot be determined from the information provided.
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Question 18
Multiple Choice

Which option price(s)will increase when the dividend yield increases?

Choose correct answer/s
A
both the call and put
B
call only
C
put only
D
neither the call nor the put
E
Answer cannot be determined from the information provided.
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Question 19
Multiple Choice

Which one of the following statements concerning option prices is correct?

Choose correct answer/s
A
There is a relatively linear direct relationship between the volatility of the underlying stock price and option prices.
B
Call option prices decrease and put option prices increase as the time to expiration increases.
C
Put option prices are directly related to the price of the underlying stock.
D
The relationship between option prices and stock prices is a linear relationship.
E
Delta measures the effect that the underlying stock's dividend yield has on option prices.
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Question 20
Multiple Choice

Which one of the following situations will produce the highest call price,all else constant?

Choose correct answer/s
A
$29 stock price; $30 strike price
B
$41 stock price; $40 strike price
C
$20 stock price; $20 strike price
D
$34 stock price; $35 strike price
E
$24 stock price; $25 strike price
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