Review III w Key

# Review III w Key - Review III Key 1 You purchase one IBM...

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Review III Key 1. You purchase one IBM July 125 call contract for a premium of \$5. You hold the option until the expiration date, when IBM stock sells for \$123 per share. You will realize a ______ on the investment. A. \$200 profit B. \$200 loss C. \$500 profit D. \$500 loss Long call profit = Max [0, (\$123 - \$125)(100)] - \$500 = -\$500 AACSB: Analytic Blooms: Apply Bodie - Chapter 15 #2 Difficulty: 2 Medium Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 2. You write one IBM July 120 call contract for a premium of \$4. You hold the option until the expiration date, when IBM stock sells for \$121 per share. You will realize a ______ on the investment. Short call profit = Min [0, (\$120 - \$121)(100)] + \$400 = \$300 AACSB: Analytic Blooms: Apply Bodie - Chapter 15 #4 Difficulty: 2 Medium Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 3. At contract maturity the value of a call option is ___________, where X equals the option's strike price and S T is the stock price at contract expiration. 1

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AACSB: Analytic Blooms: Remember Bodie - Chapter 15 #7 Difficulty: 2 Medium Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 4. ______ option can only be exercised on the expiration date. AACSB: Analytic Blooms: Remember Bodie - Chapter 15 #5 Difficulty: 1 Easy Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 5. 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, S T is the stock price at contract expiration, and P 0 is the original premium of the put option. A. Max ( P 0 , X - S T - P 0 ) B. Min (- P 0 , X - S T - P 0 ) C. Min ( P 0 , S T - X + P 0 ) D. Max (0, S T - X - P 0 ) AACSB: Analytic Blooms: Remember Bodie - Chapter 15 #17 Difficulty: 3 Hard Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 6. The initial maturities of most exchange-traded options are generally __________. AACSB: Analytic Blooms: Remember Bodie - Chapter 15 #19 Difficulty: 1 Easy Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices. Topic: The Option Contract 2

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• Fall '08
• CALAFIORE
• Options, AACSB, Bodie

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