Chapter_8_iClicker_Question_and_Answers

Chapter_8_iClicker_Question_and_Answers - Chapter 8...

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Chapter 8 iClickers Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. An option that gives the holder the right to sell a stock at a specified price at some future time is a. a call option. b. a put option. c. an out-of-the-money option. d. a naked option. e. a covered option. ____ 2. Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant? a. The price of these call options is likely to rise if XYZ's stock price rises. b. The higher the strike price on XYZ's options, the higher the option's price will be. c. Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months. d. If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase. e. If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend. ____ 3. GCC Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options. Which of the following actions would decrease the value of the options, other things held constant? a. GCC's stock price suddenly increases. b. The exercise price of the option is increased. c. The life of the option is increased, i.e., the time until it expires is lengthened. d. The Federal Reserve takes actions that increase the risk-free rate. e. GCC's stock price becomes more risky (higher variance). ____ 4. Which of the following statements is CORRECT? a. Put options give investors the right to buy a stock at a certain strike price before a specified date. b. Call options give investors the right to sell a stock at a certain strike price before a specified date. c. Options typically sell for less than their exercise value. d. LEAPS are very short-term options that were created relatively recently and now trade in the market. e.
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This note was uploaded on 02/16/2012 for the course BUSINESS 331 taught by Professor Rhee during the Spring '12 term at Strayer.

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Chapter_8_iClicker_Question_and_Answers - Chapter 8...

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