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Question 1)Warnes Motors stock is trading at $20 a share

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Question 1)Warnes Motors stock is trading at $20 a share. Call options that expire in three months with an exercise price of $20 have a price of $1.50. Which of the following will occur if the stock price increases 10 percent to $22 a share?

The price of the call option will increase by $2.

The price of the call option will increase by more than $2.

The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10 percent.

The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10 percent.

The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10 percent.

Question 2 

Suzie is the controller of The Price Rite Company. She has been granted the right to buy 1,000 shares of her employer's stock at $25 a share anytime within the next three years. Which one of the following has Suzie been granted?

employee stock option

company bonus option

employee grant

employee exercise option

company benefits option

Question 3 

Which one of the following terms applies to the value of an option on its expiration date?

strike price

upper limit

deadline price

time value

intrinsic value

Question 4 

A $20 put option on Wildwood stock expires today. The current price of the stock is $18.50. Which one of the following best describes this option?

funded

unfunded

at-the-money

in-the-money

out-of-the-money

Question 5 

Which of the following statements is CORRECT?

As the stock's price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.

Issuing options provides companies with a low cost method of raising capital.

The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price.

The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.

Question 6 

The current price of a stock is $ 57.20 and the annual effective risk-free rate is 9.6 percent. A call option with an exercise price of $55 and one year until expiration has a current value of $ 6.86 . What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Show your answer to the nearest .01. Do not use $ or , in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Hint, to find the present value of the bond, you do not need to make the e x adjustment, simple discount at the risk free rate.Your Answer:

Question 7 

You sold three $35 call option contracts at a quoted price of $1.40. What is your net profit or loss on this investment if the price of the underlying asset is $38.10 on the option expiration date?

-$510

-$90

$90

$510

$930

Question 8 

Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?

-$3.10

$16.90

$17.75

$22.50

Question 9 

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 83.63 sometime during the next 5 months. For $ 1,356.50 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $ 84 per share. If you bought a 100-share contract for $ 1,356.50 and Du Pont's stock price actually changed to $ 65.77 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Question 10 

You wrote eight call option contracts with a strike price of $42.50 at a call price of $1.35 per share. What is your net gain or loss on this investment if the price of the underlying stock is $40.30 per share on the option expiration date?

-$2,840

-$1,760

-$1,080

$1,080

$1,760

Question 11 

The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?

$7.33

$8.12

$8.55

$9.00