Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual exam question. As these represent "easier than our usual" practice questions, they are well-suited to online simulation.
Questions:
411.1. A non dividend-paying stock currently trades for $100.00. An at-the-money call option (strike = $100) on the stock trades for $17.00. An at-the-money put option (strike = $100) on the stock trades for $12.89. Both options have one year maturities. Which is nearest to the implied risk-free rate with continuous compounding?
a. 1.96%
b. 2.87%
c. 3.51%
d. 4.20%
411.2. A stock currently trades at $50.00. Consider the following four options on the stock:
a. A bull spread that employs the two call options has a maximum profit (profit = payoff minus cost) of $2.00 and maximum net loss of $2.00
b. A bull spread that employs the two put options has a maximum profit of $1.77 and maximum net loss of $2.23
c. A bear spread that employs the two put options has a maximum profit of $2.23 and a maximum net loss of $1.77
d. A bear spread that employs the two call options has a maximum profit of $1.77 and a maximum net loss of $2.23
411.3. A stock currently trades at $40.00. An at-the-money call option (strike = $40.00) is priced at $4.00 while an at-the-money put option is priced at $2.40. Asset net profit and net loss includes the initial premiums without regard to the time value of money. If you take a long straddle position that employs these options (aka, straddle purchase, bottom straddle) what is the final stock price range that will produce a net loss?
a. Between $27.67 and $52.33 will produce a net loss
b. Between $33.60 and $46.60 will produce a net loss
c. Between $38.25 and $41.75 will produce a net loss
d. No net loss is possible in the case of a straddle purchase
Answers here:
Questions:
411.1. A non dividend-paying stock currently trades for $100.00. An at-the-money call option (strike = $100) on the stock trades for $17.00. An at-the-money put option (strike = $100) on the stock trades for $12.89. Both options have one year maturities. Which is nearest to the implied risk-free rate with continuous compounding?
a. 1.96%
b. 2.87%
c. 3.51%
d. 4.20%
411.2. A stock currently trades at $50.00. Consider the following four options on the stock:
- An in-the-money (ITM) European call option (on the stock) with a strike price of $48.00 has a price of $6.00.
- An out of-the-money (OTM) European call option with a strike price of $52.00 has a price of $4.00.
- An out-of-the-money (OTM) European put option with a strike price of $48.00 has a price of $2.19
- An in-the-money (ITM) European put option with a strike price of $52.00 has a price of $3.96
a. A bull spread that employs the two call options has a maximum profit (profit = payoff minus cost) of $2.00 and maximum net loss of $2.00
b. A bull spread that employs the two put options has a maximum profit of $1.77 and maximum net loss of $2.23
c. A bear spread that employs the two put options has a maximum profit of $2.23 and a maximum net loss of $1.77
d. A bear spread that employs the two call options has a maximum profit of $1.77 and a maximum net loss of $2.23
411.3. A stock currently trades at $40.00. An at-the-money call option (strike = $40.00) is priced at $4.00 while an at-the-money put option is priced at $2.40. Asset net profit and net loss includes the initial premiums without regard to the time value of money. If you take a long straddle position that employs these options (aka, straddle purchase, bottom straddle) what is the final stock price range that will produce a net loss?
a. Between $27.67 and $52.33 will produce a net loss
b. Between $33.60 and $46.60 will produce a net loss
c. Between $38.25 and $41.75 will produce a net loss
d. No net loss is possible in the case of a straddle purchase
Answers here:
