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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 10: Mechanics of Options Markets Multiple Choice Test Bank: Questions with Answers 1. Which A. B. C. D. of the following describes a call option? The right to buy an asset for a certain price The obligation to buy an asset for a certain price The right to sell an asset for a certain price The obligation to sell an asset for a certain price Answer: A A call option is the right, but not the obligation to buy. 2. Which A. B. C.
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  Hull: Options, Futures, and Other Derivatives, Ninth EditionChapter 10: Mechanics of Options Markets Multiple Choice Test ank: !uestions ith #ns ers 1.Which of the following describes a call option?A.The right to buy an asset for a certain priceB.The obligation to buy an asset for a certain priceC.The right to sell an asset for a certain priceD.The obligation to sell an asset for a certain price Answer: AA call option is the right, but not the obligation to buy..Which of the following is true?A.A long call is the sa!e as a short putB.A short call is the sa!e as a long putC.A call on a stoc plus a stoc the sa!e as a put D.#one of the abo$e Answer: D#one of the state!ents are true. %ong calls, short calls, long puts, and short puts all ha$e di&erent payo&s as indicated by 'igure 1(.). A put on astoc plus the stoc pro$ides a payo& that is si!ilar to a call, as e*plainedin Chapters 11 and 1. But a call on a stoc plus a stoc does not pro$ide a si!ilar payo& to a put.+.An in$estor has e*changetraded put options to sell 1(( shares for -(. There is a  for 1 stoc split. Which of the following is the position of the in$estor after the stoc split? A.ut options to sell 1(( shares for -(B.ut options to sell 1(( shares for -1(C.ut options to sell (( shares for -1(D.ut options to sell (( shares for -(Answer: C When there is a stoc split the nu!ber of shares increases and the stri e price decreases. /n this case, because it is a  for 1 stoc split, the nu!ber of sharesdoubles and the stri e price hal$es. 0.An in$estor has e*changetraded put options to sell 1(( shares for -(. There is ) stoc di$idend. Which of the following is the position of the in$estor after the stoc di$idend?A.ut options to sell 1(( shares for -(B.ut options to sell 2) shares for -)C.ut options to sell 1) shares for -1)D.ut options to sell 1) shares for -13   Answer: D The stoc di$idend is e4ui$alent to a ) for 0 stoc split. The nu!ber of shares goes up by ) and the stri e price is reduced to 05) of its pre$ious $alue.).An in$estor has e*changetraded put options to sell 1(( shares for -(. There is a -1 cash di$idend. Which of the following is then the position of the in$estor?A.The in$estor has put options to sell 1(( shares for -(B.The in$estor has put options to sell 1(( shares for -16C.The in$estor has put options to sell 1() shares for -16D.The in$estor has put options to sell 1() shares for -16.() Answer: A Cash di$idends unless they are unusually large ha$e no e&ect on the ter!s of an option.3.Which of the following describes a short position in an option? A.A position in an option lasting less than one !onthB.A position in an option lasting less than three !onthsC.A position in an option lasting less than si* !onthsD.A position where an option has been sold Answer: D A short position is a position where the option has been sold 7the opposite to a long position8.2.Which of the following describes a di&erence between a warrant and an e*changetraded stoc option?A./n a warrant issue, so!eone has guaranteed the perfor!ance of the option seller in the e$ent that the option is e*ercised B.The nu!ber of warrants is 9*ed whereas the nu!ber of e*changetraded options in e*istence depends on tradingC.*changetraded stoc options ha$e a stri e price D.Warrants cannot be traded after they ha$e been purchased Answer: BA warrant is a 9*ed nu!ber of options issued by a co!pany. They often trade on an e*change after they ha$e been issued. ;.Which of the following describes %A<?A.=ptions which are partly A!erican and partly uropean  B.=ptions where the stri e price changes through ti!eC.*changetraded stoc options with longer li$es than regular e*changetraded stoc options D.=ptions on the a$erage stoc price during a period of ti!e Answer: C%A< are longter! e4uity anticipation securities. They are e*changetraded options with relati$ely long !aturities.6.Which of the following is an e*a!ple of an option class?A.All calls on a certain stoc B.All calls with a particular stri e price on a certain stoc C.All calls with a particular ti!e to !aturity on a certain stoc D.All calls with a particular ti!e to !aturity and stri e price on a certain stoc  Answer: AAn option class is all calls on a certain stoc or all puts on a certain stoc .1(.Which of the following is an e*a!ple of an option series?A.All calls on a certain stoc B.All calls with a particular stri e price on a certain stoc C.All calls with a particular ti!e to !aturity on a certain stoc D.All calls with a particular ti!e to !aturity and stri e price on a certain stoc Answer: D All options on a certain stoc of a certain type 7calls or put8 with a certain stri e price and ti!e to !aturity are referred to as an option series. 11.Which of the following !ust post !argin?A.The seller of an optionB.The buyer of an optionC.The seller and the buyer of an optionD.#either the seller nor the buyer of an option Answer: A The seller of the option !ust post !argin as a guarantee that the payo& on the option 7if there is one8 will be !ade. The buyer of the option usually pays for the option upfront and so no !argin is re4uired.  1.Which of the following describes a long position in an option?A.A position where there is !ore than one year to !aturityB.A position where there is !ore than 9$e years to !aturityC.A position where an option has been purchasedD.A position that has been held for a long ti!e Answer: CA long position is a position where an option has been purchased. /t can be contrasted with a short position which is a position where an option hasbeen sold.1+.Which of the following is #=T traded by the CB=?A.Wee lysB.>onthlysC.Binary optionsD.D==> options Answer: B>onthlys are not a CB= product. The others are.10.When a si*!onth option is purchasedA.The price !ust be paid in fullB.p to ) of the option price can be borrowed using a !argin accountC.p to )( of the option price can be borrowed using a !argin account D.p to 2) of the option price can be borrowed using a !argin account Answer: A =nly options lasting !ore than 6 !onths can be bought on !argin.1).Which of the following are true for CB= stoc options?A.There are no !argin re4uire!entsB.The initial !argin and !aintenance !argin are deter!ined by for!ulasand are e4ualC.The initial !argin and !aintenance !argin are deter!ined by for!ulasand are di&erentD.The !aintenance !argin is usually about 2) of the initial !argin Answer: B>argin accounts for options !ust be brought up to the initial5!aintenance!argin le$el e$ery day.
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