Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 11: Properties of Stock Options Multiple Choice est !ank: "uestions 1. When the stock price price increases increases with all else remaining the same, which which of the following is true? A. Both calls calls and puts puts incr increase ease in in value value B. Both calls calls and puts puts decr decrease ease in in value value C. Calls incr increase ease in value value while while puts decr decrease ease in value value D. Puts increas increase e in value value while calls decrease decrease in value value . When the strike strike price increases increases with all else remaining remaining the same, which which of the following is true? A. Both calls calls and puts puts incr increase ease in in value value B. Both calls calls and puts puts decr decrease ease in in value value C. Calls incr increase ease in value value while while puts decr decrease ease in value value D. Puts increas increase e in value value while calls decrease decrease in value value !. When volatilit" volatilit" increases increases with all else remaining the same, which which of the following is true? A. Both calls calls and puts puts incr increase ease in in value value B. Both calls calls and puts puts decr decrease ease in in value value C. Calls incr increase ease in value value while while puts decr decrease ease in value value D. Puts increas increase e in value value while calls decrease decrease in value value #. When dividends dividends increase increase with with all else else remaining remaining the same, same, which of the following is true? A. Both calls calls and puts puts incr increase ease in in value value B. Both calls calls and puts puts decr decrease ease in in value value C. Calls incr increase ease in value value while while puts decr decrease ease in value value D. Puts increas increase e in value value while calls decrease decrease in value value $. When interest interest rates increase increase with all else remaining remaining the the same, which which of the following is true? A. Both calls calls and puts puts incr increase ease in in value value B. Both calls calls and puts puts decr decrease ease in in value value C. Calls incr increase ease in value value while while puts decr decrease ease in value value D. Puts increas increase e in value value while calls decrease decrease in value value %. When the time to maturit" maturit" increases increases with all else remaining remaining the same, which of the following is true? A. &uropean &uropean optio options ns alwa"s alwa"s increa increase se in value value B. 'he value of of &uropean &uropean options options either sta"s the same or increases increases C. 'here 'here is no e(ect e(ect on &uropea &uropean n option option values values D. &uropean options are are lia)le to to increase increase or decrease decrease in value
*. 'he price of a stock, which pa"s no dividends, is +! and the strike price of a one "ear &uropean call option on the stock is +$. 'he risk-free rate is # /continuousl" compounded0. Which of the following is a lower )ound for the option such that there are ar)itrage opportunities if the price is )elow the lower )ound and no ar)itrage opportunities if it is a)ove the lower )ound? A. +$. B. +$.2 C. +#.2 D. +!.2 2. A stock price /which pa"s no dividends0 is +$ and the strike price of a two "ear &uropean put option is +$#. 'he risk-free rate is ! /continuousl" compounded0. Which of the following is a lower )ound for the option such that there are ar)itrage opportunities if the price is )elow the lower )ound and no ar)itrage opportunities if it is a)ove the lower )ound? A. +#. B. +!.2% C. +.2% D. +.2% . Which of the following is 34' true? /Present values are calculated from the end of the life of the option to the )eginning0 A. An American put option is alwa"s worth less than the present value of the strike price B. A &uropean put option is alwa"s worth less than the present value of the strike price C. A &uropean call option is alwa"s worth less than the stock price D. An American call option is alwa"s worth less than the stock price 1.Which of the following )est descri)es the intrinsic value of an option? A. 'he value it would have if the owner had to e5ercise it immediatel" or not at all B. 'he Black-6choles-7erton price of the option C. 'he lower )ound for the option8s price D. 'he amount paid for the option 11.Which of the following descri)es a situation where an American put option on a stock )ecomes more likel" to )e e5ercised earl"? A. &5pected dividends increase B. 9nterest rates decrease C. 'he stock price volatilit" decreases D. All of the a)ove 1.Which of the following is true? A. An American call option on a stock should never )e e5ercised earl" B. An American call option on a stock should never )e e5ercised earl" when no dividends are e5pected C. 'here is alwa"s some chance that an American call option on a stock
will )e e5ercised earl" D. 'here is alwa"s some chance that an American call option on a stock will )e e5ercised earl" when no dividends are e5pected
1!.Which of the following is the put-call parit" result for a non-dividend-pa"ing stock? A. 'he &uropean put price plus the &uropean call price must e:ual the stock price plus the present value of the strike price B. 'he &uropean put price plus the present value of the strike price must e:ual the &uropean call price plus the stock price C. 'he &uropean put price plus the stock price must e:ual the &uropean call price plus the strike price D. 'he &uropean put price plus the stock price must e:ual the &uropean call price plus the present value of the strike price 1#.Which of the following is true when dividends are e5pected? A. Put-call parit" does not hold B. 'he )asic put-call parit" formula can )e ad;usted )" su)tracting the present value of e5pected dividends from the stock price C. 'he )asic put-call parit" formula can )e ad;usted )" adding the present value of e5pected dividends to the stock price D. 'he )asic put-call parit" formula can )e ad;usted )" su)tracting the dividend "ield from the interest rate 1$.'he price of a &uropean call option on a non-dividend-pa"ing stock with a strike price of +$ is +%. 'he stock price is +$1, the continuousl" compounded risk-free rate /all maturities0 is % and the time to maturit" is one "ear. What is the price of a one-"ear &uropean put option on the stock with a strike price of +$? A. +.1 B. +*. C. +%. D. +. 1%.'he price of a &uropean call option on a stock with a strike price of +$ is +%. 'he stock price is +$1, the continuousl" compounded risk-free rate /all maturities0 is % and the time to maturit" is one "ear. A dividend of +1 is e5pected in si5 months. What is the price of a one-"ear &uropean put option on the stock with a strike price of +$? A. +2.* B. +%.* C. +!.% D. +1.1 1*. A &uropean call and a &uropean put on a stock have the same strike price and time to maturit". At 1<am on a certain da", the price of the call is +! and the price of the put is +#. At 1<1am news reaches the market that has no e(ect on the stock price or interest rates, )ut increases volatilities. As a
result the price of the call changes to +#.$. Which of the following is correct? A. 'he put price increases to +%. B. 'he put price decreases to +. C. 'he put price increases to +$.$ D. 9t is possi)le that there is no e(ect on the put price
12.9nterest rates are =ero. A &uropean call with a strike price of +$ and a maturit" of one "ear is worth +%. A &uropean put with a strike price of +$ and a maturit" of one "ear is worth +*. 'he current stock price is +#. Which of the following is true? A. 'he call price is high relative to the put price B. 'he put price is high relative to the call price C. Both the call and put must )e mispriced D. 3one of the a)ove 1.Which of the following is true for American options? A. Put-call parit" provides an upper and lower )ound for the di(erence )etween call and put prices B. Put call parit" provides an upper )ound )ut no lower )ound for the di(erence )etween call and put prices C. Put call parit" provides an lower )ound )ut no upper )ound for the di(erence )etween call and put prices D. 'here are no put-call parit" results .Which of the following can )e used to create a long position in a &uropean put option on a stock? A. Bu" a call option on the stock and )u" the stock B. Bu" a call on the stock and short the stock C. 6ell a call option on the stock and )u" the stock D. 6ell a call option on the stock and sell the stock
