unit 4 (invts)

Quiz by Robert Couch

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24 questions
• Q1
Implies that immediate exercise would generate a positive cash flow.
Black-Scholes formula
in the money
implied volatility
out of the money
30s
• Q2
Implies that immediate exercise would generate a negative cash flow.
Black-Scholes formula
out of the money
in the money
implied volatility
30s
• Q3
The standard deviation of stock returns that is consistent with an option’s market value.
in the money
out of the money
implied volatility
Black-Scholes formula
30s
• Q4
Uses the stock price, the risk-free interest rate, the time to expiration, and the standard deviation of stock returns to estimate the value of an option for that stock.
implied volatility
out of the money
in the money
Black-Scholes formula
30s
• Q5
Involves buying both a put and call option for the same expiration date and strike price on the same underlying security.
collar
portfolio insurance
delta
30s
• Q6
Involves buying an out-of-the-money put option while simultaneously writing an out-of-the-money call option.
collar
delta
portfolio insurance
30s
• Q7
A ratio that compares the change in the price of an underlying asset with the change in the price of a derivative or option.
delta
collar
portfolio insurance
30s
• Q8
A strategy designed to protect a portfolio of investments against potential losses.
delta
collar
portfolio insurance
30s
• Q9
Option values increase with greater volatility, all else equal.
FALSE
TRUE
30s
• Q10
Option values decrease with greater volatility, all else equal.
FALSE
TRUE
30s
• Q11
Optiona values increase with greater time-till-experiation, all else equal.
TRUE
FALSE
30s
• Q12
Optiona values decrease with greater time-till-experiation, all else equal.
TRUE
FALSE
30s
• Q13
American options are typically worth more (or at least as much as) than European options.
TRUE
FALSE
30s
• Q14
European options are typically worth more (or at least as much as) than American options.
FALSE
TRUE
30s
• Q15
If banks think the government will bail them out in the event of a crisis, this increases their incentive to take on more risk.
TRUE
FALSE
30s

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