options1 - Ch.19, Chapter 19: OPTIONS Multiple Choice...

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Unformatted text preview: Ch.19, Chapter 19: OPTIONS Multiple Choice Questions 1. Put and call options on equity securities are considered: a. Commodity derivatives b. Financial derivatives c. Forward contracts d. Futures contracts Ans: b Difficulty: easy Ref: Overview 2. One important reason for the existence of derivatives is that they: a. help lower transactions costs. b. have valuable tax benefits. c. contribute to market completeness. d. are risk-free. Ans: c Difficulty: moderate Ref: Why Have Derivative Securities? 3. Which of the following is not a reason for investors to participate in options? a. Options eliminate leverage. b. Options are a smaller investment than stock investments. c. Options allow investors to trade on the overall market movements. d. Options can reduce risk. Ans: a Difficulty: moderate Ref: Introduction to Options 4. The standard option contract is for: Chapter Nineteen Options 240 a. 10 shares of stock b. 50 shares of stock c. 100 shares of stock d. 1 share of stock Ans: c Difficulty: easy Ref: Introduction to Options 5. An investor who was bullish on a particular stock would execute which of the following options strategies: a. buy calls b. write calls c. buy puts d. either b or c Ans: a Difficulty: easy Ref: Introduction to Options 6. An investor who was bearish on a particular stock would execute which of the following options strategies: a. buy calls b. write calls c. buy puts d. either b or c Ans: d Difficulty: easy Ref: Introduction to Options 7. A major difference between new shares being sold by a corporation and shares sold under a call option is that: a. there is no profit or loss under the shares sold under the call. b. there is no risk to the investor with the call. c. there is no increase in the shares outstanding with the call. d. there is no commission to the investor with the call. Ans: c Chapter Nineteen Options 241 Difficulty: moderate Ref: Introduction to Options 8. LEAPS are typically: a. cheaper than short-term options. b. more expensive than short-term options. c. less risky than short-term options. d. more risky than short-term options. Ans: c Difficulty: moderate Ref: Introduction to Options 9. The exercise price on an option is also known as the: a. premium. b. strike price. c. theoretical value. d. spot price. Ans: b Difficulty: easy Ref: Introduction to Options 10. Which of the following statements is true regarding American and European options? a. American options can be exercised only at expiration. b. American options can be exercised only in the last week prior to expiration. c. European options can be exercised only at expiration. d. European options can be exercised any time prior to expiration. Ans: c Difficulty: moderate Ref: Introduction to Options 11. Which of the following statements is true regarding a call writer: a. The call writer expects the stock to move upward....
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This note was uploaded on 04/20/2010 for the course FCBA MBA608 taught by Professor Dr. during the Spring '10 term at Baptist College of Health Sciences.

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options1 - Ch.19, Chapter 19: OPTIONS Multiple Choice...

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