Online Quiz The Black-Scholes Option Pricing Model

Attempt 1
Question 1
Delta is defined as
the change in the value of an option for a dollar change in the price of the underlying asset.
the change in the value of the underlying asset for a dollar change in the call price.
the percentage change in the value of an option for a one percent change in the value of the
underlying asset.
the change in the volatility of the underlying stock price.
none of the above.

Question 2
Which one of the following variables influence the value of call options?
I) Level of interest rates.
II) Time to expiration of the option.
III) exercise price.
IV) Stock price volatility.
I and IV only.
II and III only.
I, II, and IV only.
I, II, III, and IV.
I, II and III only.

Question 3
Prior to expiration
the intrinsic value of an option is greater than its premium.
the intrinsic value of an option is always positive.
the premium of an option is always greater than the intrinsic value.
the premium of an option is always greater than its time value.
none of the above.

Question 4
The Black-Scholes formula assumes that
I) the risk-free interest rate is constant over the life of the option.
II) the stock price volatility is constant over the life of the option.
III) the expected rate of return on the stock is constant over the life of the option.
IV) there will be no sudden extreme jumps in stock prices.

I and II
I and III
II and II
I, II and IV
I, II, III, and IV

Question 5
If a stock call option has 0.30 chance of finishing in the money, a put with the same expiration date and
exercise price as the call should have ________ chance of finishing in the money.
0.70
0.30
-0.70
-0.30
-.17

Question 6
AnAmericanstylecalloptionwithsixmonthstomaturityhasastrikepriceof
$35.Theunderlyingstocknowsellsfor$43.Thecallpremiumis$12.Whatisthe
intrinsicvalueofthecall?

$12
$8
$0
$23
none of the above.

Question 7
Other things equal, the price of a stock put option is positively correlated with the following factors except
the stock price.
the time to expiration.
the stock volatility.
the exercise price.
none of the above.

Question 8

If the stock price increases, the price of a put option on that stock __________ and that of a call option
__________.
decreases, increases
decreases, decreases
increases, decreases
increases, increases
does not change, does not change

Question 9
A normal distribution has the following properties:
I. the number of observations above the mean is equal to that below the mean
II. if x is normally distributed with mean 0 and standard deviation 1, it is well documented that the probability
that x will lie between -1 and 1 is 0.95
III. normal distribution has fat tails
I only
I and II only
I and III only
II and III only
I, II and III

Question 10
Given: S0 = $35; X = $29; T = 180 days; r = 0.08 (annual); N(d1) = 0.7300; N(d2) = 0.6583. The value of the
call option is _______.
$7.13
$7.20
$8.43
$8.67
$8.89

Attempt 2
Question 3
You purchased a call option for a premium of $4. The call has an exercise price of $29 and is expiring today.
The current stock price is $31. What would be your best course of action?
Exercise the call because the stock price is greater than the exercise price.
Do not exercise the call because the stock price is greater than the exercise price.
Do not exercise the call because the difference between the exercise price and the stock price is not
enough to cover the amount of the premium.
Do not exercise the call to avoid a negative net return on the investment.

None of the above

Question 4
Before expiration, the time value of an in the money call option is always
equal to zero.
positive.
negative.
equal to the stock price minus the exercise price.
none of the above.

Question 10
A call option has an intrinsic value of zero if the option is
at the money.
out of the money.
in the money.
A and C.
A and B.

Attempt 3
Question 1
All the inputs in the Black-Scholes Option Pricing Model are directly observable except
the price of the underlying security.
the risk free rate of interest.
the time to expiration.
the variance of returns of the underlying asset return.
none of the above.