Hull_ofod9e_multiplechoice_questions_and_answers_ch01.doc

Transcript

Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 1: Introduction Multiple Choice Test Bank: uestions !ith "ns!ers 1. A one-year one-year forwar forward d contract contract is an agreement agreement wher where e A. One side has the right to buy buy an asset for a certain price price in one year’s year’s time. B. One side has the obligation to buy an asset asset for a certain certain price in one one year’s time. C. One side has the obligation to buy an asset asset for a certain certain price at some some time during the next year. D. One side has the obligation to buy an asset asset for the maret maret price price in one year’s time. Answer! B A one-year forward contract is an obligation to buy or sell in one year’s time for a predetermined price. By contrast" an option is the right to buy or sell. #. $hich $hich of the following following is %O& %O& true true A. $hen a CBO' call option on (B) is exercised" exercised" (B) issues more stoc stoc B. An American option can can be exercised exercised at any time during its its life C. An call option will always be exerc exercised ised at maturity maturity if the underlying underlying asset price is greater than the strie price D. A put option will always be exercised exercised at maturity if the strie price is greater than the underlying asset price. Answer! A $hen an (B) call option is exercised the option seller must buy shares in the maret to sell to the option buyer. (B) is not in*ol*ed in any way. Answers B" C" and D are true. +. A one-yea one-yearr call option option on a stoc stoc with with a stri strie e price price of ,+ costs costs ,+ ,+ a oneoneyear put option on the stoc with a strie price of ,+ costs ,/. 0uppose that a trader buys two call options and one put option. &he breae*en stoc price abo*e which the trader maes a prot is A. ,+2 B. ,/ C. ,+ D. ,+3 Answer! A $hen the stoc price is ,+2" the two call options pro*ide a payo4 of #56+27+8 or ,1. &he put option pro*ides no payo4. &he total cost of the options is #5+9 / or ,1. &he stoc price in A" ,+2" ,+2" is therefore therefore the breae*en stoc price abo*e which the position is protable because it is the price for which the cost of the options e:uals the payo4. /. A one-year call option on a stoc with a strie price of ,+ costs ,+ a oneyear put option on the stoc with a strie price of ,+ costs ,/. 0uppose that a trader buys two call options and one put option. &he breae*en stoc price below which the trader maes a prot is A. ,#2 B. ,#; C. ,#3 D. ,# Answer! D $hen the stoc price is ,# the two call options pro*ide no payo4. &he put option pro*ides a payo4 of +7# or ,1. &he total cost of the options is #5+9 / or ,1. &he stoc price in D" ,#" is therefore the breae*en stoc price below which the position is protable because it is the price for which the cost of the options e:uals the payo4. 2. $hich of the following is approximately true when si A. &he price for immediate deli*ery B. &he price for deli*ery at a future time C. &he price of an asset that has been damaged D. &he price of renting an asset Answer! A  &he spot price is the price for immediate deli*ery. &he futures or forward price is the price for deli*ery in the future ?. $hich of the following is true about a long forward contract A. &he contract becomes more *aluable as the price of the asset declines B. &he contract becomes more *aluable as the price of the asset rises C. &he contract is worth