MCQOPTIONS
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MCQOPTIONS
This section includes 68 Mcqs, each offering curated multiple-choice questions to sharpen your Financial Management/Financial Markets knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
In the option pricing, an increasing in option price is due to |
| A. | time of expiry increases |
| B. | time of expiry decreases |
| C. | exchange time increases |
| D. | exchange time decreases |
| Answer» B. time of expiry decreases | |
| 2. |
According to the Black Scholes model, the selling and buying of the stock have |
| A. | discount rate |
| B. | transaction costs |
| C. | no transaction costs |
| D. | no discounts |
| Answer» C. no transaction costs | |
| 3. |
The variability of stock price, option term to maturity and the risk free rate are the dependents of |
| A. | price of an option |
| B. | expiry of an option |
| C. | exercise of an option |
| D. | estimation of an option |
| Answer» B. expiry of an option | |
| 4. |
According to the Black Scholes model, the call option is well exercised on its |
| A. | mid buying date |
| B. | expiry date |
| C. | buying date |
| D. | mid selling date |
| Answer» C. buying date | |
| 5. |
The stock option is more worthwhile if it is |
| A. | extremely volatile |
| B. | less volatile |
| C. | stable stock |
| D. | unstable price stock |
| Answer» B. less volatile | |
| 6. |
The first step in binomial approach of option pricing is to |
| A. | define ending price of stock |
| B. | define beginning price of stock |
| C. | define range of values |
| D. | define domain of values |
| Answer» B. define beginning price of stock | |
| 7. |
The type of options that do not have the stock in portfolio to back up the options is classified as |
| A. | undue options |
| B. | due options |
| C. | naked options |
| D. | total options |
| Answer» D. total options | |
| 8. |
The present value of portfolio is $900 and the current value of stock in portfolio is $1500 then the current option price would be |
| A. | 2400 |
| B. | −$600 |
| C. | −$2400 |
| D. | 600 |
| Answer» E. | |
| 9. |
The market value of the option which is out-of-money is |
| A. | greater than zero |
| B. | equal to zero |
| C. | lesser than zero |
| D. | equal to one |
| Answer» B. equal to zero | |
| 10. |
According to the Black Scholes model, the short term seller receives today's price which |
| A. | short term cash proceeds |
| B. | proceeds in cheques |
| C. | full cash proceeds |
| D. | zero proceeds |
| Answer» D. zero proceeds | |
| 11. |
An increase in value of option leads to low present value of exercise cost only if it has |
| A. | low volatility |
| B. | interest rates are high |
| C. | interest rates are low |
| D. | high volatility |
| Answer» C. interest rates are low | |
| 12. |
According to the Black Scholes model, the rate which is constant and known is classified as |
| A. | short term return rate |
| B. | long term return rate |
| C. | risk free interest rate |
| D. | risky rate of return |
| Answer» D. risky rate of return | |
| 13. |
In binomial approach of option pricing model, the fourth step is to create |
| A. | equalize the domain of payoff |
| B. | equalize the ending price |
| C. | riskless investment |
| D. | high risky investment |
| Answer» D. high risky investment | |
| 14. |
In put call parity relationship, the present value of exercise price is added to call option which is equal to |
| A. | put option stock |
| B. | call option + stock |
| C. | call option + market price |
| D. | put option + market price |
| Answer» B. call option + stock | |
| 15. |
The current value of stock included in portfolio is subtracted from current option price to calculate |
| A. | future value of stock |
| B. | present value of portfolio |
| C. | future value of portfolio |
| D. | present value of stock |
| Answer» C. future value of portfolio | |
| 16. |
The present value of portfolio is $500 and the current option price is $1200 then the value of stock included in portfolio will be |
| A. | 1700 |
| B. | −$1700 |
| C. | 700 |
| D. | −$700 |
| Answer» B. −$1700 | |
| 17. |
The situation in financial options in which the strike price is less than current price of stock is classified as |
| A. | in-the-money |
| B. | out-of-the-money |
| C. | out-of-the-portfolio |
| D. | in-the-portfolio |
| Answer» B. out-of-the-money | |
| 18. |
If the current price increases from lower to higher then an |
| A. | option value equal to one |
| B. | option value will increase |
| C. | option value will decrease |
| D. | option value equal to zero |
| Answer» C. option value will decrease | |
| 19. |
The price at which the European and American options can be exercised is classified as |
| A. | exercise price |
| B. | strike price |
| C. | horizon price |
| D. | both a and b |
| Answer» E. | |
| 20. |
When two portfolios have identical values and payoffs then it is classified as |
| A. | binomial parity relationship |
| B. | put parity relationship |
| C. | put option parity relationship |
| D. | put call parity relationship |
| Answer» E. | |
| 21. |
The movement of price or the rise or fall of prices of options is classified as |
| A. | option lattice |
| B. | pricing movement |
| C. | price change |
| D. | binomial lattice |
| Answer» E. | |
| 22. |
According to put call parity relationship, a call option minus put option in addition with present value of exercise is equal to |
| A. | binomial property |
| B. | constant property |
| C. | constant and variable property |
| D. | stock |
| Answer» E. | |
| 23. |
According to the Black Scholes model, the trading of securities and the stock prices move respectively |
| A. | constant and randomly |
| B. | randomly and constant |
| C. | randomly and continuously |
| D. | continuously and randomly |
| Answer» E. | |
| 24. |
The third step in binomial approach of option pricing is to |
| A. | equalize the beginning price |
| B. | equalize the range of payoffs |
| C. | equalize the domain of payoff |
| D. | equalize the ending price |
| Answer» C. equalize the domain of payoff | |
| 25. |
An option which can be exercised any desired time before an expiry date is classified as |
| A. | Australian option |
| B. | money option |
| C. | European option |
| D. | American option |
| Answer» E. | |
| 26. |
The type of option which cannot be exercised before an expiry date which is classified as |
| A. | European option |
| B. | American option |
| C. | Australian option |
| D. | money option |
| Answer» B. American option | |
| 27. |
The greater value of the option, the larger span of time value is usually results in |
| A. | shorter call option |
| B. | longer call option |
| C. | longer put option |
| D. | shorter put option |
| Answer» C. longer put option | |
| 28. |
At the last day when the European and American option can be exercised is classified as |
| A. | European date |
| B. | American date |
| C. | expiration date |
| D. | money date |
| Answer» D. money date | |
| 29. |
The current option is $800 and the current value of stock in portfolio is $1900 then the present value of portfolio would be |
| A. | −$1100 |
| B. | 2700 |
| C. | 1100 |
| D. | −$2700 |
| Answer» D. −$2700 | |
| 30. |
According to the Black Scholes model, the purchaser can borrow fraction of security at risk free interest rate which is |
| A. | short term |
| B. | long term |
| C. | transaction cost |
| D. | no transaction cost |
| Answer» B. long term | |
| 31. |
In an option pricing, a rises in risk free rate results in option's value |
| A. | slight time decreases |
| B. | slight increases |
| C. | slight decreases |
| D. | slight time increases |
| Answer» C. slight decreases | |
| 32. |
An investor who buys shares and writes a call option on stock is classified as |
| A. | put investor |
| B. | call investor |
| C. | hedger |
| D. | volatile hedge |
| Answer» D. volatile hedge | |
| 33. |
The value of stock is $1000 and the current value of portfolio is $1500 then the obligation to cover call option will be |
| A. | 0.666 |
| B. | 2500 |
| C. | 0.015 |
| D. | 500 |
| Answer» E. | |
| 34. |
The current value of stock including in portfolio is subtracted from present value of portfolio to calculate |
| A. | last month option price |
| B. | last year option price |
| C. | current option price |
| D. | future option price |
| Answer» D. future option price | |
| 35. |
An excess of actual price of option over an exercise value of option is classified as |
| A. | time value options |
| B. | actual options |
| C. | estimated options |
| D. | optional pricing |
| Answer» B. actual options | |
| 36. |
According to exercise value and option price, the market value of the option will be zero when |
| A. | stock price is maximum |
| B. | option price is zero |
| C. | stock price is zero |
| D. | stock price is minimum |
| Answer» D. stock price is minimum | |
| 37. |
The stock option is considered more valuable in the situation when the stock have |
| A. | price hike in market |
| B. | market stability |
| C. | not volatile |
| D. | highly volatile |
| Answer» E. | |
| 38. |
The current value of stock in portfolio with current option price $20 is $50, then present value of portfolio would be |
| A. | 30 |
| B. | 70 |
| C. | 0.0167 |
| D. | 0.3 |
| Answer» B. 70 | |
| 39. |
The sellers of options in the financial markets are classified as |
| A. | expiry writer |
| B. | option writer |
| C. | contract writer |
| D. | bond writer |
| Answer» C. contract writer | |
| 40. |
The value of stock is $250 and the call option obligation is $100 then the current value of portfolio would be |
| A. | 0.35 times |
| B. | 150 |
| C. | 350 |
| D. | 2.5 |
| Answer» C. 350 | |
| 41. |
In binomial approach of option pricing model, the value of stock is subtracted from call option obligation value to calculate |
| A. | current value of portfolio |
| B. | future value of portfolio |
| C. | put option value |
| D. | call option value |
| Answer» B. future value of portfolio | |
| 42. |
According to put call parity relationship, the call option plus present value of exercise price minus stock is to calculate |
| A. | present value of option |
| B. | call option |
| C. | put option |
| D. | future value of option |
| Answer» D. future value of option | |
| 43. |
The type of options in which the buyer of options has call on 200 shares in stock is classified as |
| A. | call option |
| B. | stated option |
| C. | unstated option |
| D. | contractual option |
| Answer» B. stated option | |
| 44. |
The current value of portfolio is $550 and to cover an obligation of call option is $200 then the value of stock would be |
| A. | 350 |
| B. | 0.0275 |
| C. | 750 |
| D. | 2.75 times |
| Answer» D. 2.75 times | |
| 45. |
A type of contract in which the contract holder has the right to sell an asset at specific period for predetermining price is classified as |
| A. | option |
| B. | written contract |
| C. | determined contract |
| D. | featured contract |
| Answer» B. written contract | |
| 46. |
In put call parity relationship, the put option minus call option in addition with stock is equal to |
| A. | exercise price present value |
| B. | exercise price future value |
| C. | time line value |
| D. | time value of bond |
| Answer» B. exercise price future value | |
| 47. |
The current option is $700 and the current value of stock in portfolio is $1400 then the present value of portfolio will be |
| A. | −$700 |
| B. | 2100 |
| C. | 700 |
| D. | 0.02 |
| Answer» D. 0.02 | |
| 48. |
In financial planning, the most high option price will lead to |
| A. | longer option period |
| B. | smaller option period |
| C. | lesser price |
| D. | higher price |
| Answer» B. smaller option period | |
| 49. |
The current option price is added to present value of portfolio for calculating |
| A. | future value of portfolio |
| B. | current value of stock |
| C. | future value of stock |
| D. | present value of portfolio |
| Answer» C. future value of stock | |
| 50. |
The second step in binomial approach of option pricing is to define range of values |
| A. | at expiration |
| B. | at buying date |
| C. | at exchange closing time |
| D. | at exchange opening time |
| Answer» B. at buying date | |