Which option gives the right to buy an underlying asset at a fixed price? Answer a. Binomial option. b. Put option. c. Call option. d. European option. e. American option. Which option gives the right...

1. Which option gives the right to buy an underlying asset at a fixed price?
Answer
a. Binomial option.
b. Put option.
c. Call option.
d. European option.
e. American option.
2. Which option gives the right to sell an underlying asset at a fixed price?
Answer
a. Call option.
b. Put option.
c. Binomial option.
d. European option.
e. American option.
3. Which of the following statements about spot prices (S) and future prices
(F) is correct?
Answer
a. F and S are never equal
b. There is no relationship between F and S.
c. F is always equal to S.
d. F = f(S plus carrying costs).
e. S is always greater than F.
4. In Australia the SPI future has a value of $25 per point of the index. If you
go long the SPI at 4500 and the price closes for the day at 4510 then your
account balance would
Answer
a. increase by $25
b. decrease by $250
c. not change because marking to market only occurs when you close out
d. decrease by $25
e. increase by $250
5. The value of an option, if exercised immediately, is known as:
Answer
a. time value
b. present value
c. future value
d. intrinsic value
e. strike value
6. The value of an option in excess of its intrinsic value is known as:
Answer
a. strike
value
b. excess
value
c. exercise
value
d. time
value
e. current
value
7. If the share price at the expiry of a call option is less than the exercise
price, the call is worth:
Answer
a. zero.
b. the original price paid for the option.
c. the market price of the share.
d. an undefined amount.
e. the difference between the exercise price and the share price.
8. Which of the following items are correct with respect to Futures? There
may be more than one correct answer.
Answer
I. An important function of a futures clearing house is to minimise default
II. Futures can be used to hedge risk, speculate on price and to perform riskless
arbitrage.
III. The futures clearing house guarantees all its futures contracts whether they are
long or short.
IV. An important difference between a forwards and a futures is that futures are
marked to market.
V. Most futures contracts do not go to delivery.
9. Which of the following enables an arbitrage profit to be made (excluding
transaction costs) from a call option if the market price of the underlying
share is $5.50, the price of the...