Hull:Options,Futures,andOtherDerivatives,NinthEditionChapter10:MechanicsofOptionsMarketsMultipleChoiceTestBank:QuestionswithAnswers1.Whichofthefollowingdescribesacalloption?A.TherighttobuyanassetforacertainpriceB.TheobligationtobuyanassetforacertainpriceC.TherighttosellanassetforacertainpriceD.TheobligationtosellanassetforacertainpriceAnswer:AAcalloptionistheright,butnottheobligationtobuy.2.Whichofthefollowingistrue?A.AlongcallisthesameasashortputB.AshortcallisthesameasalongputC.AcallonastockplusastockthesameasaputD.NoneoftheaboveAnswer:DNoneofthestatementsaretrue.Longcalls,shortcalls,longputs,andshortputsallhavedifferentpayoffsasindicatedbyFigure10.5.Aputonastockplusthestockprovidesapayoffthatissimilartoacall,asexplainedinChapters11and12.Butacallonastockplusastockdoesnotprovideasimilarpayofftoaput.3.Aninvestorhasexchange-tradedputoptionstosell100sharesfor$20.Thereisa2for1stocksplit.Whichofthefollowingisthepositionoftheinvestorafterthestocksplit?A.Putoptionstosell100sharesfor$20B.Putoptionstosell100sharesfor$10C.Putoptionstosell200sharesfor$10D.Putoptionstosell200sharesfor$20Answer:CWhenthereisastocksplitthenumberofsharesincreasesandthestrikepricedecreases.Inthiscase,becauseitisa2for1stocksplit,thenumberofsharesdoublesandthestrikepricehalves.4.Aninvestorhasexchange-tradedputoptionstosell100sharesfor$20.Thereis25%stockdividend.Whichofthefollowingisthepositionoftheinvestorafterthestockdividend?A.Putoptionstosell100sharesfor$20B.Putoptionstosell75sharesfor$25C.Putoptionstosell125sharesfor$15D.Putoptionstosell125sharesfor$16Answer:DThestockdividendisequivalenttoa5for4stocksplit.Thenumberofsharesgoesupby25%andthestrikepriceisreducedto4/5ofitspreviousvalue.5.Aninvestorhasexchange-tradedputoptionstosell100sharesfor$20.Thereisa$1cashdividend.Whichofthefollowingisthenthepositionoftheinvestor?A.Theinvestorhasputoptionstosell100sharesfor$20B.Theinvestorhasputoptionstosell100sharesfor$19C.Theinvestorhasputoptionstosell105sharesfor$19D.Theinvestorhasputoptionstosell105sharesf...
