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# chap024 - Chapter 024 Option Valuation Multiple Choice...

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Chapter 024 Option Valuation Multiple Choice Questions 1. Which one of the following entails the purchase of a put option on a stock to limit the downside risk associated with owning that stock? a. put-call parity b. covered call C . protective put d. straddle e. strangle SECTION: 24.1 TOPIC: PROTECTIVE PUT TYPE: DEFINITIONS 2. The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as: A . put-call parity. b. a balanced call. c. a protective call. d. a balanced put. e. a protective put. SECTION: 24.1 TOPIC: PUT-CALL PARITY TYPE: DEFINITIONS 3. The effect on an option's value of a small change in the value of the underlying asset is called the option: SECTION: 24.3 TOPIC: OPTION DELTA TYPE: DEFINITIONS 24-1

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Chapter 024 Option Valuation 4. The sensitivity of an option's value to a change in the option's time to expiration is measured by the option: A . theta. b. vega. c. rho. d. delta. e. gamma. SECTION: 24.3 TOPIC: OPTION THETA TYPE: DEFINITIONS 5. The sensitivity of an option's value to a change in the standard deviation of the return on the underlying asset is measured by the option: SECTION: 24.3 TOPIC: OPTION VEGA TYPE: DEFINITIONS 6. The sensitivity of an option's value to a change in the risk-free rate is measured by the option: SECTION: 24.3 TOPIC: OPTION RHO TYPE: DEFINITIONS 24-2
Chapter 024 Option Valuation 7. An estimate of the future standard deviation of the return on an asset obtained from the Black-Scholes Option Pricing Model is called a(n): a. residual error. b. asset mean return. c. derived case volatility (DCV). d. forecast rho. E . implied standard deviation (ISD). SECTION: 24.3 TOPIC: IMPLIED STANDARD DEVIATION TYPE: DEFINITIONS 8. An option that grants the right, but not the obligation, to sell shares of the underlying asset on a particular date at a specified price is called a(n): SECTION: 24.1 TOPIC: PUT OPTION TYPE: CONCEPTS 9. Which one of the following provides the option of selling a stock anytime during the option period at a specified price even if the market price of the stock declines to zero? SECTION: 24.1 TOPIC: PUT OPTION TYPE: CONCEPTS 24-3

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Chapter 024 Option Valuation
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chap024 - Chapter 024 Option Valuation Multiple Choice...

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