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FINS2624-Portfolio Mgmt - s1/2013

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Online Quiz 11

Take Test: Online Quiz 11

Take Test: Online Quiz 11

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Instructions
Multiple Attempts This Test allows 3 attempts. This is attempt number 1.
Force Completion This Test can be saved and resumed later.

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Question 1

10 points

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.

Question 2

10 points

The value of a call option on a NAB share with an exercise price of $34.10
and 8 months to expiration is $4.50. Compute the value of a European put
option on a NAB share with the same exercise price and expiration date if the
current price of NAB shares in the market is $33.85 and annualised
continuously compounded risk free rate is 1.4 percent.
$4.43
$4.50
$4.78
$5.03
None of the above

Question 3

10 points

A portfolio consists of 100 shares of stock and 2 call contracts on that stock. If the
hedge ratio for the call is 0.7, what would be the dollar change in the value of the
portfolio in response to a one dollar decline in the stock price? Each call contract has 1000
underlying shares.
-$2100

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Question 4

10 points

Portfolio A consists of 150 shares of stock and 300 calls on that stock. Portfolio B
consists of 575 shares of stock. The call delta is 0.7. Which portfolio has a higher
dollar exposure to a change in stock price?
Portfolio B
Portfolio A
The two portfolios have the same exposure
A if the stock price increases and B if it decreases
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ey Status
B if the stock price decreases and
A if it increases.

Question 5

10 points

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 6

10 points

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 7

10 points

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.

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Question 8

10 points

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.

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Question 9

10 points

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 10

10 points

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

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