Brealey. Myers. Allen Chapter 20 Test

Brealey. Myers. Allen Chapter 20 Test - Chapter 20...

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Brealey/Myers/Allen, Principles of Corporate Finance, 8/e 1 Chapter 20 Understanding Options Multiple Choice Questions 1. Firms regularly use the following to reduce risk: (I) Currency options (II) Interest-rate options (III) Commodity options A) I only B) II only C) III only D) I, II, and III Answer: D Type: Medium Page: 541 2. The following are examples of disguised options for firm: (I) acquiring growth opportunities (II) ability of the firm to terminate a project when it is no longer profitable options that are associated with corporate securities that provide flexibility to change the terms of the issues A) I only B) II only C) I and III only D) I, II, and III Answer: D Type: Medium Page: 541 3. An investor, in practice, can buy: (I) an option on a single share of stock (II) options that are in multiples of 100 (III) a minimum order of 100 options on a share of stock A) I only B) II and III only C) II only D) III only Answer: B Type: Easy Page: 542 4. An option that can be exercised any time before expiration date is called: A) an European option B) an American option C) a call option D) a put option Answer: B Type: Easy Page: 542
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Test Bank, Chapter 20 2 5. The two principal options exchanges in the U.S.A. are: (I) International Securities Exchange (II) New York Stock Exchange (III) NASDAQ (IV) Chicago Board of Options Exchange A) II and III only B) I and IV only C) I and II only D) III and IV only Answer: B Type: Easy Page: 542 6. In November 2003, an investor buys a call option on Amgen stock with an exercise of price of $65 and expiring in January 2005. If the stock price in November 2003 is $60, then this option is: (I) in-the-money (II) out-of-the-money (III) a LEAPS A) I only B) II only C) III only D) II and III only Answer: D Type: Easy Page: 543 7. The payoff (Position) diagram for a put with the same exercise price and premium as the call on the same underlying asset with the same maturity is (like): A) the inverse of the call diagram along the put price B) unrelated to the call diagram no matter what the exercise price C) the mirror image of the call diagram around the exercise price D) exactly the same as the call diagram for the given exercise price Answer: C Type: Difficult Page: 543 8. In November 2003, an investor buys a put option on Amgen stock with an exercise of price of $55 and expiring in January 2005. If the stock price in November 2003 is $60, then this option is: (I) in-the-money (II) out-of-the-money (III) a LEAPS A) I only B) II only C) III only D) I and III only Answer: D Type: Easy Page: 543
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Brealey/Myers/Allen, Principles of Corporate Finance, 8/e 3 9. A put gives the owner the right A) and the obligation to buy an asset at a given price B) and the obligation to sell an asset at a given price C) but not the obligation to buy an asset at a given price D) but not the obligation to sell an asset at a given price Answer: D Type: Medium Page: 543 10. The buyer of a call option has the choice to exercise, but the writer of the call option has:
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Brealey. Myers. Allen Chapter 20 Test - Chapter 20...

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