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Unformatted text preview: E120: Principles of Engineering Economics Final Exam December 14 th , 2004 Instructor: Professor Shmuel Oren Part 1: Concepts. (20 points) 1. Circle the only correct answer. 1.1 Which of the following statements is FALSE? a. It is never optimal to exercise American call options before the expiration date. b. Buying a call option at the money and selling a put option at the money is equivalent to buying a forward contract. c. It is never optimal to exercise American put options before the expiration date. d. There is an arbitrage opportunity if the put-call parity does not hold. e. An American put option has a higher value than a European put option for the same stock at the same strike price. 1.2 Stock ownership can be replicated by: a. Buying call options on a stock and writing put options on a stock. b. Buying call options on a stock and borrowing at the risk-free interest rate. c. Buying put options on a stock and borrowing at the risk-free interest rate. d. Buying put options on a stock, lending funds at the risk-free interest rate, and writing call options. e. Buying call options on a stock, borrowing (should be lending) funds at the risk- free interest rate, and writing put options. 1.3 The amount of systematic risk present in a particular risky asset, relative to the systematic risk present in an average risky asset, is called the particular assets: a. Beta coefficient b. Reward to risk ratio c. Law of One Price d. Diversifiable risk e. Profitability Index 1.4 Which of the following describes a portfolio that plots above the security market line? a. The security is overvalued. b. The securitys reward to risk ratio is too high. c. The security is providing a return that is less than expected. d. The securitys beta is too high. e. The security provides a return that is less than the average return on the market. 1.5 Which of the following would be considered an example of systematic risk? a. Intel reports record sales. b. Quarterly profit for GM equals expectations. c. Lower quarterly sales for IBM than expected. d. Greater new jobless claims than expected. e. Fed leaves interest rates unchanged, as expected. 1.6 If you exercise a put option prior to expiration, a. You are obligated to buy the asset underlying the option contract at the option strike price....
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- Fall '08