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Question 1

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The seller of a put option is betting that the market value of the stock will decrease.

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Question 2

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True/False

The VIX is an estimate of expected future market volatility.

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Question 3

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A call option is worthless if the underlying stock is worthless.

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Question 4

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The lower limit on a call option's value is equal to the greater of zero or the exercise price minus the stock price.

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Question 5

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A strategy of buying the stock and selling the put is called a protective put.

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Question 6

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The value of a call option increases as the exercise price decreases.

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Question 7

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The value of both call and put options increases as the variability of the stock price decreases.

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Question 8

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Callable bonds allow the investor to redeem the bond at face value or let the bond remain outstanding until maturity.

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Question 9

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Warrants do not expire.

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Question 10

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Convertible bonds give the investor the option to acquire the firm's stock in exchange for the value of the underlying bond.

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Question 11

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Callable bonds give the call option to the issuing firm and hence reduce the value of the bond.

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Question 12

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The longer the time until expiration of a call option,the lower the value of the option.

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Question 13

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Only at the expiration date can an investor expect to find the value of call options above their lower bound.

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Question 14

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Stock price volatility is beneficial to option holders.

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Question 15

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Unlike call options,the option to abandon a real asset can never be more valuable as time to expiration increases.

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Question 16

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A callable bond gives the issuer a potentially valuable option in the case of changing interest rates.

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Question 17

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At expiration a call option will have no value if the stock price is less than exercise price.

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Question 18

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At expiration a put option will have no value if the stock price is less than the exercise price.

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Question 19

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A protective put is a way to eliminate the downside risk of holding stock.

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Question 20

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The value of a call option increases as the exercise price increases.

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