FINA 385 PROBLEM 1 – MCQ SECTION CONCORDIA UNIVERSITY
2024-2025 PRE-EXAM QUESTIONS
(1) A call option is said to be out of the money if
(a) The exercise price is lower than the stock price
(b) The exercise price is equal to the stock price
(c) The price of the put is higher than the price of the call
(d) The exercise price is higher than the stock price
(e) The price of the call is higher than the put
(2) The lowest pay-off for the buyer and the seller of a put option would be
(a) Zero; zero
(b) -The price of the put option; zero
(c) Zero; -exercise price
(d) The price of the put option; -exercise price
(3) According to the put call theorem; the value of a European call option on a non-dividend
paying stock is equal to:
(a) The price of the put option plus the present value of the exercise price minus the stock
price
(b) The stock price plus the present value of the exercise price minus the price of the put
option
(c) The price of the put option plus the stock price minus the present value of the exercise
price
(d) The stock price plus the present value of the exercise price plus the price of the put
option
(e) None of the above
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, (4) Which one of the following statement(s) is/are correct?
I. As the exercise price goes down; the price of the call option goes up
II. As the volatility of the underlying asset decreases; the price of a call option decreases
but the price of the put option increases
III. Increasing risk-free rate would lower the price of the put option
(a) I only
(b) I, III
(c) II, III
(d) II only
(e) I,II,III
(5) If the time to exercise date increases; the price of a put option would and the
price of a call option would
(a) Decrease; increase
(b) Decrease; decrease
(c) Increase; decrease
(d) Increase; increase
(e) Doesn’t change, doesn’t change
(6) Current IBM stock price = $53; The price of a 1-year put option on IBM stock with X =
$55: $4
The price of a 1-year call option on IBM stock with X = $55: $2.5;The risk-free rate is 10%
How can one take advantage of the arbitrage opportunity?
(a) Buy the stock and the call option; write the put option and lend $50
(b) Buy the call option; lend $50 and short-sell the stock; write a put option
(c) Buy the stock and the put option; sell the call option and borrow $50
(d) Short-sell the stock; write the call option; buy the put option and lend $50
(e) There is no arbitrage opportunity
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2024-2025 PRE-EXAM QUESTIONS
(1) A call option is said to be out of the money if
(a) The exercise price is lower than the stock price
(b) The exercise price is equal to the stock price
(c) The price of the put is higher than the price of the call
(d) The exercise price is higher than the stock price
(e) The price of the call is higher than the put
(2) The lowest pay-off for the buyer and the seller of a put option would be
(a) Zero; zero
(b) -The price of the put option; zero
(c) Zero; -exercise price
(d) The price of the put option; -exercise price
(3) According to the put call theorem; the value of a European call option on a non-dividend
paying stock is equal to:
(a) The price of the put option plus the present value of the exercise price minus the stock
price
(b) The stock price plus the present value of the exercise price minus the price of the put
option
(c) The price of the put option plus the stock price minus the present value of the exercise
price
(d) The stock price plus the present value of the exercise price plus the price of the put
option
(e) None of the above
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, (4) Which one of the following statement(s) is/are correct?
I. As the exercise price goes down; the price of the call option goes up
II. As the volatility of the underlying asset decreases; the price of a call option decreases
but the price of the put option increases
III. Increasing risk-free rate would lower the price of the put option
(a) I only
(b) I, III
(c) II, III
(d) II only
(e) I,II,III
(5) If the time to exercise date increases; the price of a put option would and the
price of a call option would
(a) Decrease; increase
(b) Decrease; decrease
(c) Increase; decrease
(d) Increase; increase
(e) Doesn’t change, doesn’t change
(6) Current IBM stock price = $53; The price of a 1-year put option on IBM stock with X =
$55: $4
The price of a 1-year call option on IBM stock with X = $55: $2.5;The risk-free rate is 10%
How can one take advantage of the arbitrage opportunity?
(a) Buy the stock and the call option; write the put option and lend $50
(b) Buy the call option; lend $50 and short-sell the stock; write a put option
(c) Buy the stock and the put option; sell the call option and borrow $50
(d) Short-sell the stock; write the call option; buy the put option and lend $50
(e) There is no arbitrage opportunity
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