A) $2.62
B) $2.92
C) $3.24
D) $3.60
E) $4.00
G) All of the above
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A) If Deeble's stock price rose by $5, the exercise value of the options with the $25 exercise price would also increase by $5.
B) The options with the $25 exercise price will sell for less than the options with the $35 exercise price.
C) The options with the $25 exercise price have an exercise value greater than $5.
D) The options with the $35 exercise price have an exercise value greater than $0.
E) The options with the $25 exercise price will sell for $5.
G) None of the above
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A) Call option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
G) C) and D)
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A) One advantage of forward contracts is that they are default free.
B) Futures contracts generally trade on an organized exchange and are marked to market daily.
C) Goods are never delivered under forward contracts, but are almost always delivered under futures contracts.
D) Forward contracts are generally standardized instruments, whereas futures contracts are generally tailor-made for the 2 parties of the contract.
E) Essentially there are no differences between forward and futures contracts, except that forward contracts are used only for financial assets while futures contracts are used only for commodities.
G) D) and E)
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A) A swap involves the exchange of cash payment obligations.
B) The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.
C) Swaps are very often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.
D) A problem with swaps is that no standardized contracts exist, which has prevented the development of a secondary market.
E) Swaps can involve side payments in order to get the counterparty to agree to the swap.
G) B) and C)
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A) An increase in GCC's stock price.
B) An increase in the exercise price of the option.
C) An increase in the amount of time until the option expires.
D) An increase in the risk-free rate.
E) GCC's stock price becomes more risky (higher variance) .
G) B) and C)
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A) Buying inverse floaters.
B) Entering into an interest rate swap where the bank receives a fixed payment stream, and in return agrees to make payments that float with market interest rates.
C) Purchase principal only (PO) strips that decline in value whenever interest rates rise.
D) Enter into a short hedge where the bank agrees to sell interest rate futures.
E) Sell some of the bank's floating-rate loans and use the proceeds to make fixed-rate loans.
G) A) and B)
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A) $4.41
B) $4.90
C) $5.39
D) $5.93
E) $6.52
G) A) and C)
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A) The price of call options will rise if XYZ's stock price rises.
B) The higher the strike price, the higher the call option price.
C) Assuming the same strike price, a call option that expires in 1 month will sell for a higher price than one that expires in 3 months.
D) The less volatile a stock's price, the more valuable a call option on the stock is.
E) If the risk-free rate of interest increases, the value of call options will decrease.
G) A) and E)
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A) $3.00
B) $3.75
C) $4.69
D) $5.86
E) $7.32
G) C) and D)
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A) 4.74%
B) 4.99%
C) 5.25%
D) 5.53%
E) 5.81%
G) A) and B)
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B) False
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A) Call option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
G) A) and E)
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Correct Answer
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A) An option's value is determined by its exercise value, which is the market price of the stock less its strike price. Thus, an option can't sell for more than its exercise value.
B) As a stock's price increases, the premium portion of an option on that stock increases because the difference between the stock price and the fixed strike price increases.
C) If the company is consistently profitable, its call options will always be in the money.
D) The market value of an option depends in part on the option's length of time until expiration and on the variability of the underlying stock's price.
E) The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin becomes larger.
G) B) and C)
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A) $63.00
B) $65.00
C) $67.00
D) $69.00
E) $71.00
G) D) and E)
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