Question : 81.Which of the following statements true? a.When one writes a naked : 1325799

81.Which of the following statements is true?

a.When one writes a naked call option it means they do not own shares of the underlying stock.

b.When one writes a naked call option it means they do own shares of the underlying stock.

c.Buying or selling naked options is an example of hedging.

d.Buying or selling naked options is an example of speculation.

e.Both (a) and (d) are true.

82.Put-call parity says that the price on a portfolio of ____ must equal the price of a portfolio of ____.

a.a bond and call option; one share of common stock and one put option.

b.one share of common stock and a call option; a bond and one put option.

c.one share of preferred stock and a bond; a call option and one put option

d.one put option and one share of preferred stock; a bond and one call option

83.The idea behind the Binomial Model is that:

a.Investors can combine options with a risk-free asset to construct a portfolio with the same payoff as the underlying asset.

b.Investors can combine options with shares of the underlying asset to construct a portfolio with a risky payoff.

c.Investors can form a portfolio of a bond and call option which should equal the payoff of a portfolio comprised of one share of common stock and one put option.

d.Investors can combine options with shares of the underlying asset to construct a portfolio with a risk-free payoff.

84.Which of the following statements regarding the Binomial Model is true?

a.It makes assumptions about the volatility of the underlying stock.

b.The first step is forming a risk-free portfolio.

c.The objective of the portfolio is to generate the same cash payment in the future regardless of whether the value of the stock rises or falls.

d.All of the above

e.Only (b) and (c) are true.

85.Which of the following is NOT needed to price options using the binomial approach?

a.the current price of the underlying stock

b.the risk-free rate

c.the possible values that the underlying stock could take in the future

d.the strike price of the option

e.the value of N(d1)

86.Which of the following statements regarding the Binomial Model is false?

a.It requires that we make assumptions about the probabilities of up and down movements in the underlying stock’s price.

b.More complex versions of the binomial model can accommodate a wide range of final stock values.

c.It prices options through the principle of ‘no arbitrage.’

d.It argues that the value of identical assets should be selling at identical prices.

87.One key difference between the Black and Scholes (B&S) option pricing model and the binomial model is that the B&S model assumes the ____ is known whereas the binomial model does not.

a.current market value of the underlying asset

b.annual risk-free rate

c.strike price

d.time until expiration

e.standard deviation of the underlying asset

88.Employee stock options are typically ____ when they are issued.

a.in the money

b.out of the money

c.at the money

d.for the money

89.Which of the following statements regarding employee stock options (ESO) is false?

a.Most ESOs are at the money when issued.

b.They are typically issued with only a few months until expiration.

c.Many firms do not let employees exercise their options until a vesting period has passed.

d.ESOs are most valuable when the price of the underlying asset is well above the stock price.

90.Warrants attached to another security offering that give investors more upside potential are known as:

a.convertible bonds

b.kicker values

c.equity kickers

d.up warrants

e.convertible warrants