Financial Markets Lesson 13 Quiz Answer
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Week 5
Lesson #13 Quiz
Q1) What are the two types of options?
- A “put” option is the right to buy and a “call” option is the right to sell.
- A “get” option is the right to buy and a “push” option is the right to sell.
- A “call” option is the right to buy and a “put” option is the right to sell.
- A “push” option is the right to buy and a “get” option is the right to sell.
Q2) Why do some stock options have an exercise price which is more than the cost of the stock?
- New investors often mistake “put” and “call” options, leading to an easy profit for the dealer.
- These options are “put” options, giving you the option to sell at a higher price.
- The stock options sell for negative prices, because the investor will lose money if the stock price does not fluctuate.
- For “call” options, this provides the option to buy at this price if the stock goes up before the exercise date.
Q3) Which of the following is NOT a behavioral reason why people buy options?
- Portfolio managers will usually buy options for clients without them knowing so that if the stock price goes down, the manager will come across as thinking ahead and watching out for their clients.
- People will feel better about themselves if their stocks go down if they have purchased a put option on them, regardless of whether or not they gained or lost overall.
- They are fooled by salespeople.
- People will pay attention to specific aspects of their portfolio more so than others, so they will buy options when they hear about volatility in the market to protect certain components of their portfolio.
- No, because defaulting does not eliminate liability
- No in recourse states, yes in non-recourse states.
- Yes, because people always have the option to default.
- Yes, because they can be sold by banks to Fannie Mae and Freddie Mac.
Q5) What is the put-call parity relationship?
- A relationship between the put price, the call price, and the stock price for European-style stock options.
- A method of arbitrage for options exchanges.
- Another name for the Black-Scholes model.
- A mathematical formula specifying that the put price of an option minus the call price of an option equals the price of the stock
Q6) What is a stop-loss order?
- An instruction to your broker indicating that they should sell your shares once it drops below some price.
- A type of stock that will protect you against losses.
- The same thing as a put option, except you do not have to pay for it.
- An instruction to your broker indicating that they should sell your shares once they get above a certain price.
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