投资学第7版TestBank答案21.docx

投资学第7版TestBank答案21.docx

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投资学第7版TestBank答案21

投资学第7版Test-Bank答案21

MultipleChoiceQuestions

1.Beforeexpiration,thetimevalueofaninthemoneycalloptionisalways

A）equaltozero.

B）positive.

C）negative.

D）equaltothestockpriceminustheexerciseprice.

E）noneoftheabove.

Answer:

BDifficulty:

Easy

Rationale:

Thedifferencebetweentheactualoptionpriceandtheintrinsicvalueiscalledthetimevalueoftheoption.

2.Beforeexpiration,thetimevalueofaninthemoneyputoptionisalways

A）equaltozero.

B）negative.

C）positive.

D）equaltothestockpriceminustheexerciseprice.

E）noneoftheabove.

Answer:

CDifficulty:

Easy

Rationale:

Thedifferencebetweentheactualoptionpriceandtheintrinsicvalueiscalledthetimevalueoftheoption.

3.Beforeexpiration,thetimevalueofanatthemoneycalloptionisalways

A）positive.

B）equaltozero.

C）negative.

D）equaltothestockpriceminustheexerciseprice.

E）noneoftheabove.

Answer:

ADifficulty:

Easy

Rationale:

Thedifferencebetweentheactualoptionpriceandtheintrinsicvalueiscalledthetimevalueoftheoption.

4.Beforeexpiration,thetimevalueofanatthemoneyputoptionisalways

A）equaltozero.

B）equaltothestockpriceminustheexerciseprice.

C）negative.

D）positive.

E）noneoftheabove.

Answer:

DDifficulty:

Easy

Rationale:

Thedifferencebetweentheactualoptionpriceandtheintrinsicvalueiscalledthetimevalueoftheoption.

5.Acalloptionhasanintrinsicvalueofzeroiftheoptionis

A）atthemoney.

B）outofthemoney.

C）inthemoney.

D）AandC.

E）AandB.

Answer:

EDifficulty:

Easy

Rationale:

Intrinsicvaluecanneverbenegative;thusitissetequaltozeroforoutofthemoneyandatthemoneyoptions.

6.Aputoptionhasanintrinsicvalueofzeroiftheoptionis

A）atthemoney.

B）outofthemoney.

C）inthemoney.

D）AandC.

E）AandB.

Answer:

EDifficulty:

Easy

Rationale:

Intrinsicvaluecanneverbenegative;thusitissetequaltozeroforoutofthemoneyandatthemoneyoptions.

7.Priortoexpiration

A）theintrinsicvalueofacalloptionisgreaterthanitsactualvalue.

B）theintrinsicvalueofacalloptionisalwayspositive.

C）theactualvalueofcalloptionisgreaterthantheintrinsicvalue.

D）theintrinsicvalueofacalloptionisalwaysgreaterthanitstimevalue.

E）noneoftheabove.

Answer:

CDifficulty:

Moderate

Rationale:

Priortoexpiration,anyoptionwillbesellingforapositiveprice,thustheactualvalueisgreaterthantheintrinsicvalue.

8.Priortoexpiration

A）theintrinsicvalueofaputoptionisgreaterthanitsactualvalue.

B）theintrinsicvalueofaputoptionisalwayspositive.

C）theactualvalueofputoptionisgreaterthantheintrinsicvalue.

D）theintrinsicvalueofaputoptionisalwaysgreaterthanitstimevalue.

E）noneoftheabove.

Answer:

CDifficulty:

Moderate

Rationale:

Priortoexpiration,anyoptionwillbesellingforapositiveprice,thustheactualvalueisgreaterthantheintrinsicvalue.

9.Ifthestockpriceincreases,thepriceofaputoptiononthatstock__________andthatofacalloption__________.

A）decreases,increases

B）decreases,decreases

C）increases,decreases

D）increases,increases

E）doesnotchange,doesnotchange

Answer:

ADifficulty:

Moderate

Rationale:

Asstockpricesincreases,calloptionsbecomemorevaluable（theownercanbuythestockatabargainprice）.Asstockpricesincrease,putoptionsbecomelessvaluable（theownercansellthestockatapricelessthanmarketprice）.

10.Ifthestockpricedecreases,thepriceofaputoptiononthatstock__________andthatofacalloption__________.

A）decreases,increases

B）decreases,decreases

C）increases,decreases

D）increases,increases

E）doesnotchange,doesnotchange

Answer:

CDifficulty:

Moderate

Rationale:

Asstockpricesdecreases,calloptionsbecomelessvaluable（theownercanbuythestockatabargainprice）.Asstockpricesdecreases,putoptionsbecomemorevaluable（theownercansellthestockatapricelessthanmarketprice）.

11.Otherthingsequal,thepriceofastockcalloptionispositivelycorrelatedwiththefollowingfactorsexcept

A）thestockprice.

B）thetimetoexpiration.

C）thestockvolatility.

D）theexerciseprice.

E）noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

Theexercisepriceisnegativelycorrelatedwiththecalloptionprice.

12.Otherthingsequal,thepriceofastockputoptionispositivelycorrelatedwiththefollowingfactorsexcept

A）thestockprice.

B）thetimetoexpiration.

C）thestockvolatility.

D）theexerciseprice.

E）noneoftheabove.

Answer:

ADifficulty:

Moderate

Rationale:

Theexercisepriceisnegativelycorrelatedwiththestockprice.

13.Thepriceofastockputoptionis__________correlatedwiththestockpriceand__________correlatedwiththestrikingprice.

A）positively,positively

B）negatively,positively

C）negatively,negatively

D）positively,negatively

E）not,not

Answer:

BDifficulty:

Moderate

Rationale:

Thelowerthestockprice,themorevaluablethecalloption.Thehigherthestrikingprice,themorevaluabletheputoption.

14.Thepriceofastockcalloptionis__________correlatedwiththestockpriceand__________correlatedwiththestrikingprice.

A）positively,positively

B）negatively,positively

C）negatively,negatively

D）positively,negatively

E）not,not

Answer:

DDifficulty:

Moderate

Rationale:

Thelowerthestockprice,themorevaluablethecalloption.Thehigherthestrikingprice,themorevaluabletheputoption.

15.AlltheinputsintheBlack-ScholesOptionPricingModelaredirectlyobservableexcept

A）thepriceoftheunderlyingsecurity.

B）theriskfreerateofinterest.

C）thetimetoexpiration.

D）thevarianceofreturnsoftheunderlyingassetreturn.

E）noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

Thevarianceofthereturnsoftheunderlyingassetisnotdirectlyobservable,butmustbeestimatedfromhistoricaldata,fromscenarioanalysis,orfromthepricesofotheroptions.

16.Deltaisdefinedas

A）thechangeinthevalueofanoptionforadollarchangeinthepriceoftheunderlyingasset.

B）thechangeinthevalueoftheunderlyingassetforadollarchangeinthecallprice.

C）thepercentagechangeinthevalueofanoptionforaonepercentchangeinthevalueoftheunderlyingasset.

D）thechangeinthevolatilityoftheunderlyingstockprice.

E）noneoftheabove.

Answer:

ADifficulty:

Moderate

Rationale:

Anoption'shedgeratio（delta）isthechangeinthepriceofanoptionfor$1increaseinthestockprice.

17.Ahedgeratioof0.70impliesthatahedgedportfolioshouldconsistof

A）long0.70callsforeachshortstock.

B）short0.70callsforeachlongstock.

C）long0.70sharesforeachshortcall.

D）long0.70sharesforeachlongcall.

E）noneoftheabove.

Answer:

CDifficulty:

Moderate

Rationale:

Thehedgeratioistheslopeoftheoptionvalueasafunctionofthestockvalue.Aslopeof0.70meansthatasthestockincreasesinvalueby$1,theoptionincreasesbyapproximately$0.70.Thus,foreverycallwritten,0.70sharesofstockwouldbeneededtohedgetheinvestor'sportfolio.

18.Ahedgeratioforacalloptionis________andahedgeratioforaputoptionis______.

A）negative,positive

B）negative,negative

C）positive,negative

D）positive,positive

E）zero,zero

Answer:

CDifficulty:

Moderate

Rationale:

Calloptionhedgeratiosmustbepositiveandlessthan1.0,andputoptionratiosmustbenegative,withasmallerabsolutevaluethan1.0.

19.Ahedgeratioforacallisalways

A）equaltoone.

B）greaterthanone.

C）betweenzeroandone

D）betweenminusoneandzero.

E）ofnorestrictedvalue

Answer:

CDifficulty:

Moderate

Rationale:

Seerationalefortestbankquestion21.18.

20.Ahedgeratioforaputisalways

A）equaltoone.

B）greaterthanone.

C）betweenzeroandone

D）betweenminusoneandzero.

E）ofnorestrictedvalue

Answer:

DDifficulty:

Moderate

Rationale:

Seerationalefortestbankquestion21.18.

21.Thedollarchangeinthevalueofastockcalloptionisalways

A）lowerthanthedollarchangeinthevalueofthestock.

B）higherthanthedollarchangeinthevalueofthestock.

C）negativelycorrelatedwiththechangeinthevalueofthestock.

D）BandC.

E）AandC.

Answer:

ADifficulty:

Moderate

Rationale:

Theslopeofthecalloptionvaluationfunctionislessthanone.

22.Thepercentagechangeinthestockcalloptionpricedividedbythepercentagechangeinthestockpriceiscalled

A）theelasticityoftheoption.

B）thedeltaoftheoption.

C）thethetaoftheoption.

D）thegammaoftheoption.

E）noneoftheabove.

Answer:

ADifficulty:

Moderate

Rationale:

Optionpriceelasticitymeasuresthepercentchangeintheoptionpriceasafunctionofthepercentchangeinthestockprice.

23.Theelasticityofastockcalloptionisalways

A）greaterthanone.

B）smallerthanone.

C）negative.

D）infinite.

E）noneoftheabove.

Answer:

ADifficulty:

Moderate

Rationale:

Optionpricesaremuchmorevolatilethanstockprices,asoptionpremiumsaremuchlowerthanstockprices.

24.Theelasticityofastockputoptionisalways

A）positive.

B）smallerthanone.

C）negative

D）infinite

E）noneoftheabove.

Answer:

CDifficu