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BADM 710 Exam 2 Questions with Explanations of Answers | latest upate 2024
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BADM 710 Exam 2T or F: A European option may be exercised anytime up to and including the expiration date. -
ANS-False
The act of buying and selling the underlying asset via the option contract is called ________ the
option.
A. Exposing
B. Exercising
C. Striking
D. Selling - ANS-B
(Screenshot 1)
The RTP Corporation has the following call option information. You are interested in purchasing
four contracts for the July call. How much will be the cost of the transaction?
A. $1,000
B. $1,250
C. $1,500
D. $1,800
E. $2,000 - ANS-D
A financial contract that provides its owner with the right, but not the obligation, to buy or sell a
specified asset at an agreed-upon price on or before a given future date is called a(n) _____
contract.
A. Option
B. Futures
C. Forward
D. Swap
E. Straddle - ANS-A
The act where an owner of an option buys or sells the underlying asset, as is his right, is called
______ the option.
A. Striking
B. Exercising
C. Opening
D. Splitting
E. Strangling - ANS-B
The fixed price in an option contract at which the owner can buy or sell the underlying asset is
called the option's:
A. Opening price
B. Intrinsic value
,C. Strike price
D. Market price
E. Time value - ANS-C
The last day on which an owner of an option can elect to exercise that option is referred to as
the _____ date.
A. Ex-payment
B. Ex-option
C. Opening
D. Expiration
E. Intrinsic - ANS-D
An option that may be exercised only on the expiration date is called a(n) _____ option.
A. European
B. American
C. Bermudian
D. Futures
E. Asian - ANS-A
If a call option has a positive intrinsic value at expiration the call is said to be:
A. Funded
B. Unfunded
C. At the money
D. In the money
E. Out of the money - ANS-D
A _____ is a derivative security that gives the owner the right, but not the obligation, to buy an
asset at a fixed price for a specified period of time.
A. Futures contract
B. Call option
C. Put option
D. Swap
E. Forward contract - ANS-B
Which of these will increase the value of a call option?
I. An increase in the market value of the underlying asset
II. An increase in the option's strike price
III. A decrease in the market value of the underlying asset
IV. A decrease in the option's strike price
A. I and II only
B. II only
C. II and III only
D. I and IV only
, E. I only - ANS-D
An out-of-the-money call option is best defined as an option that:
A. Has an exercise price below the current market price of the underlying security
B. Should not be exercised at this time
C. Has an exercise price equal to the current market price of the underlying security
D. Has expired
E. Qualifies as an American option - ANS-B
Jillian owns a call option on WAN stock with a strike price of $20 a share. Currently, WAN is
selling for $24.50 a share. Jillian would like to profit on this option but is not permitted to
exercise the option for another two weeks. She believes the stock will decline in value before
the two weeks is up. What should she do?
A. Sell her option today
B. Place an order to exercise her option on its expiration date
C. Purchase an additional call option on WAN today with a strike price of $20
D. Place an order to exercise her option as soon as she is permitted to do so
E. Convert her American option into a European option - ANS-A
Which of these will decrease the value of a put option?
I. An increase in the market value of the underlying asset
II. An increase in the option's strike price
III. A decrease in the market value of the underlying asset
IV. A decrease in the option's strike price
A. I and II only
B. I and IV only
C. II and III only
D. III only
E. IV only - ANS-B
An in-the-money put option is one that:
A. Has an exercise price greater than the underlying stock price
B. Has an exercise price less than the underlying stock price
C. Expires today
D. Should not be exercised at expiration
E. Should not be exercised at any time - ANS-A
A put option on ABC stock with an exercise price of $35 expires today. The current price of ABC
stock is $36. The put is:
A. Funded
B. Unfunded
C. At the money
D. In the money
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