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Unformatted text preview: Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) It can be shown that the put call parity relationship for options where the underlying asset makes cash distributions and where the time value of money is recognized is: Put option price Call option price = ________. 1) A) Future value of strike price + Present value of cash distribution Price of underlying asset B) Present value of strike price Present value of cash distribution + Price of underlying asset C) Present value of strike price + Present value of cash distribution Price of underlying asset D) Present value of strike price + Future value of cash distribution Price of underlying asset 2) The option price will change as the price of the ________. For a ________, as the price of the underlying asset increases (all other factors constant), the option price increases. The opposite holds for a ________. 2) A) European option changes; call option; put option B) underlying asset changes; put option; call option C) American option changes; put option; call option D) underlying asset changes; call option; put option 3) All other factors equal, the ________ the expected volatility (as measured by ________) of the price of the underlying asset, the more an investor would be willing to pay for the option, and the more an option writer would demand for it. 3) A) greater; beta B) lower; the standard deviation C) lower; the variance D) greater; the standard deviation 4) If the strike or exercise price for a put option is $75, and the current asset price is $75, and the market value of the put option is $77. What is the time premium of the put option? 4) A) $1 B) $2 C) $7 D) zero 5) Solving for the theoretical futures price, we get ________. 5) A) F = P P(r + y). B) F = P + P(r y). C) F = P + P(y r). D) P = F + F(r y). 6) To determine the value of the ________, H, we must know C u and C d . These two values are equal to the difference between the price of the asset and the strike price in the two possible states. 6) A) payoff ratio B) hedge ratio C) put option D) call option 7) Consider the "cash and carry trade" where you sell (or take a short position in) the futures contract, purchase Asset XYZ, and borrow until the settlement date. In computing the value "from the loan," which of the below statements is TRUE?...
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This document was uploaded on 01/24/2012.
 Spring '09
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