Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch10

Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch10 -...

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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 10: Mechanics of Options Markets Multiple Choice Test Bank: Questions with Answers 1. Which of the following describes a call option? A. The right to buy an asset for a certain price B. The obligation to buy an asset for a certain price C. The right to sell an asset for a certain price D. The obligation to sell an asset for a certain price Answer: A A call option is the right, but not the obligation to buy. 2. Which of the following is true? None of the statements are true. Long calls, short calls, long puts, and short puts all have different payoffs as indicated by Figure 10.5. A put on a stock plus the stock provides a payoff that is similar to a call, as explained in Chapters 11 and 12. But a call on a stock plus a stock does not provide a similar payoff to a put. 3. An investor has exchange-traded put options to sell 100 shares for $20. There is a 2 for 1 stock split. Which of the following is the position of the investor after the stock split? When there is a stock split the number of shares increases and the strike price decreases. In this case, because it is a 2 for 1 stock split, the number of shares doubles and the strike price halves. 4. An investor has exchange-traded put options to sell 100 shares for $20. There is 25% stock dividend. Which of the following is the position of the investor after the stock dividend?
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The stock dividend is equivalent to a 5 for 4 stock split. The number of shares goes up by 25% and the strike price is reduced to 4/5 of its previous value.
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