If the put is selling for $5, should you buy it? Why or why not?

Question 1

If you are long the option, then you can choose whether to exercise or not.



Question 2

Risk-neutral valuation is one way to estimate the value of the option before maturity



Question 3

A call has an exercise price of $18 and 6 months to maturity. The stock price is $19. Find the intrinsic value. If the option price is $1.75, what is the speculative value?

A. Intrinsic = 1; speculative = .75
B. Intrinsic = 0; speculative = .75
C. Intrinsic = 1; speculative = 1.75
D. Intrinsic = 0; speculative = 1.75

Question 4

There are two calls on the same stock. Both expire in 6 months and are identical in every way except the exercise price. If Call A has an exercise price of $40 and Call B has an exercise price of $50, which call will have a higher price?

A. Call A
B. Call B
C. Cannot be determined

Question 5

If the present value of the exercise price is $20, the call option is selling for $5, and the market price of the stock is $22. If the put is selling for $5, should you buy it? Why or why not?

A. Yes, you will make $3
B. No, you will lose $3
C. Yes, you will make $2
D. No, you will lose $2

Question 6

Which of the following is an example of a real option?

A. Foothold in an expanding market
B. End a project early
C. Wait for better market conditions
D. All of these are real options


Question 7

A _____ gives the owner the right to buy an asset at a fixed price for a set length of time

A. Treasury bill
B. Put
C. Call

Question 8

If immediate exercise generates value, the option is ___ the money.

A. In
B. At
C. Out of

Question 9

The minimum option value

A. intrinsic value
B. speculative value
C. option price

Question 10

With a (an) ____ option, you can exercise at any time up to the maturity date

A. European
B. American

A decrease in ____ will decrease the price of both a call and a put on the same stock

A. Exercise price
B. Dividends
C. Stock price
D. Volatility

If the stock is worthless, then the call option is worthless.




Put-call parity says that the call plus the stock is equal to the put plus the present value of the exercise price


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