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II.Multiple-Choice Questions and Problems 31.An investor (the buyer) purchases a call

Question : II.Multiple-Choice Questions and Problems 31.An investor (the buyer) purchases a call : 1400611

 

II.Multiple-Choice Questions and Problems

31.An investor (the buyer) purchases a call option from a seller. On the expiration date of a call option,

a.the buyer has the obligation to buy the underlying asset and the seller has the obligation to sell it.

b.the buyer has the right to buy the underlying asset and the seller has the obligation to sell it.

c.the buyer has the obligation to buy the underlying asset and the seller has the right to sell it.

d.None of the above.

32.An investor (the buyer) purchases a put option from a seller. On the expiration date of a call option,

a.the buyer has the obligation to sell the underlying asset and the seller has the right to buy it.

b.the buyer has the obligation to sell the underlying asset and the seller has the obligation to buy it.

c.the buyer has the right to sell the underlying asset and the seller has the obligation to buy it.

d.None of the above

33.Which one of the following statements is NOT true?

a.The value of a call option can never be negative.

b.The value of a call option can never be more than the value of the underlying asset.

c.The value of a call option can never be worth less than the current value of the asset minus present value of the strike price.

d.The value of a call option can never be worth more than the strike price.

34.Which one of the following statements is NOT true?

a.The value of a put option can never be negative.

b.The value of a put option can never be worth more than the underlying asset.

c.The value of a put option can never be less than the present value of the strike price minus the current value of the underlying asset.

d.All the above statements are true.

35.Suppose you own a call option on a stock with a strike price of $20 that expires today. The price of the underlying stock is $15. If you exercise the option and immediately sell the stock,

a.you will earn $5.

b.you will lose $5.

c.you will lose $15.

d.you will earn $15.

36.Suppose you own a put option on a stock with a strike price of $35 that expires today. The price of the underlying stock is $25. If you purchase the stock and exercise the put option,

a.you will earn $10.

b.you will lose $10.

c.you will earn $25.

d.you will lose $25.

37.Consider an option that gives the owner the right to buy a stock for $20 only on the third Friday of May, next year. The option being described is

a.an American call option.

b.a European put option.

c.an American put option.

d.a European call option.

38.Consider an American and a European call option on a dividend-paying stock, with otherwise identical features (same strike price, etc.). Which one of the following statements is true?

a.The American call option will never be worth less than the European call option.

b.The European call option will never be worth less than the American call option.

c.Both options should always have the same value.

d.None of the above statements is true.

39.A straddle is a combination of a put option and a call option on the same asset with the same strike price. Which one of the following statements about a straddle is NOT true?

a.The owner of a straddle will receive a payoff if the price of the underlying asset is higher than the strike price at expiration.

b.The owner of a straddle will receive a payoff if the price of the underlying asset is lower than the strike price at expiration.

c.The owner of a straddle will never exercise the put and the call option at the same time.

d.The owner of a straddle will receive a higher payoff if the price of the underlying asset at expiration is near the strike price.

40.Which of the following changes, when considered individually, will increase the value of a call option?

a.The value of the underlying asset becomes more volatile.

b.The price of the underlying asset goes down.

c.Getting closer to the expiration date (the passage of time).

d.A higher strike price.

 

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