1.An option contract gives the option holder:
(a)the right and obligation to buy or sell an asset at a contractual price on or before a specified date.
(b)the right, but not the obligation, to buy or sell an asset at a contractual price on or before a specified date.
(c)no legally enforceable rights and obligations.
(d)the right to buy or sell an asset at a specified price only if the option writer is willing to sell the asset at that price.
2.The price at which an option can be exercised is called the:
(a)settlement price.
(b)spot price.
(c)option premium.
(d)strike price.
3.An option to sell an asset is called:
(a)a call option.
(b)a put option.
(c)a futures option.
(d)a forward option.
4.An option to buy an asset is called:
(a)a call option.
(b)a put option
(c)a futures option.
(d)a forward option.
5.A European option:
(a)is an option traded in Europe.
(b)can be exercised anytime before its maturity date.
(c)can be exercised only in Europe.
(d)can be exercised only on its maturity date.
6.A call option can be replicated by:
(a)lending at the risk-free interest rate and selling common stock.
(b)lending at the risk-free interest rate and buying common stock.
(c)borrowing at the risk-free interest rate and selling common stock.
(d)borrowing at the risk-free interest rate and buying common stock.
7.Which of the following will cause an increase in the value of a call option?
(a)A decrease in the spot price of the optioned asset.
(b)An increase in the exercise price of the option.
(c)A reduction in the standard deviation of the price of the optioned asset.
(d)An increase in the standard deviation of the price of the optioned asset.
8.Which of the following will cause a decrease in the value of a call option?
(a)An increase in the spot price of the optioned asset.
(b)A decrease in the risk-free interest rate.
(c)A reduction in the exercise price of the option.
(d)An increase in the option's expiration date.
9.An out-of-the-money call option is:
(a)an option with a strike price greater than the current spot price of the underlying asset.
(b)an option with a strike price equal to the current spot price of the underlying asset.
(c)an option with a strike price less than the current spot price of the underlying option.
(d)an option with a strike price below the expected price of the underlying asset on the option's maturity date.