Which of the following factors will affect the price of an option The strike price of the option The amount of time until expiration The price of the underlying

Which of the following factors will affect the price of an option?

a.The strike price of the option

b.The amount of time until expiration

c.The price of the underlying stock

d.All of the above

72.Jimmy Campbell is looking to buy put options on Hawkwood Corporation. Currently Hawkwood Corp. stock is trading at $40 per share. The put options that he is considering buying have a strike price of $45. These put options are

a.in-the-money

b.American options

c.out-of-the money

d.European options

73.Which of the following would affect the premium of a call option?

a.interest rates

b.dividend yield

c.stock price volatility

d.all of the above

74.Ryan T. Gates buys a call option on Hoste Enterprise for $3. The call option has a strike price of $35 and 6 months to expiration. If the price of Hoste Enterprise is $33 in 6 months how much is the call option worth at expiration.

a.$3

b.$2

c.$-2

d.$0

75.Rico Pagano holds the stock of Nosbitzh & Company. Pagano is concerned that over the next 6 months the stock of Nozbitzh & Co. may fall by 20%. To protect the value of his position, Pagano could

a.sell a naked call

b.buy a protective put

c.sell a protective put

d.buy a call

76.Lauri Mazurek buys a call option on Piede Inc. Currently Piede Inc. trades at $65 per share. The call option she buys has a strike price of $70 and has a premium of $4. What is Mazurek’s breakeven price?

a.$66

b.$70

c.$69

d.$74

77.Kimball Johnson has just purchased a put option on Reut Corporation which currently trades at $58 per share. The put option has a strike price of $50, 6 months until expiration, and trades at a premium of $3. What is the breakeven price for Johnson’s put option.

a.$47

b.$53

c.$55

d.$61

78.Thomas Duckworth owns and operates Stones Asset Management. The firm manages $10 billion in assets and focuses on exploiting arbitrage opportunities. Duckworth uses put - call parity to price put and call options. According to his put - call parity analysis Duckworth realizes that puts with a strike price of $30 and 1 month remaining until expiration on Medusa’s Inc. should be priced at $2.30. However he realizes that the $30 puts are trading for $2.75 in the open market. How should Duckworth exploit this arbitrage opportunity?

a.sell the puts in the open market, buy Medusa’s stock, short a zero coupon bond with a face value of $30 and maturity of 1 month, and buy a 1 month call with a strike price of $30

b.buy the puts in the open market, short Medusa’s stock, short a zero coupon bond with a face value of $30 and maturity of 1 month, and buy a 1 month call with a strike price of $30

c.sell the puts in the open market, lend $30 at the risk free rate, buy a 1 month $30 call on Medusa’s, and short the underlying stock.

d.buy a zero coupon bond with a face value of $30 and maturity of 1 month and buy a 1 month call with a strike price of $30

79.An investor who employs a short straddle strategy is hoping that the underlying stock price

a.is extremely volatile

b.is stable

c.trends above the strike price of the options

d.trends below the strike price of the options

80.Meri Beth Rank believes that stock of Opp & Company is going to be extremely volatile over the next month. Meri Beth expects the stock to move by 50% but she is not sure whether the stock of Opp & Company will rise or fall. A possible strategy that Meri Beth could employ to profit from her expectation is

a.a long straddle

b.a short straddle

c.a short call

d.a short put