Sample_test_questions_Ch_20_and_21

Sample_test_questions_Ch_20_and_21 - Sample Test Questions...

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1 Sample Test Questions Chapters 20 and 21 1. 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 2. Ignoring the premium paid or received for the option, the figure below depicts the position diagram of: Value of Option Price of the Stock 0 Strike Price Strike Price A) the buyer of call option B) the seller (writer) of call option C) the buyer of put option D) the seller (writer) of put option Answer: C 3. The buyer of a call option has the choice to exercise, but the writer of the call option has: A) The choice to offset with a put option B) The obligation to deliver the shares at exercise C) The choice to deliver shares or take a cash payoff D) The choice of exercising the call or not Answer: B
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2 4. Suppose an investor buys one share of stock and a put option on the stock. Ignoring the costs of purchasing the share and the put initially, what will be the value of her investment on the final exercise date if the stock price is below the exercise price? Hint: The investor has bought a “protective put.” A) The value of two shares of stock B) The value of one share of stock plus the exercise price
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Sample_test_questions_Ch_20_and_21 - Sample Test Questions...

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