## 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.

True

False

Question 2

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

True

False

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.

True

False

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

True