Reference no: EM13484167

The following questions appeared in past CFA Level I examinations.

a. Which one of the following comparative statements about common stock call options and warrants is correct?

Call Option Warrant
a.	Issued by the company	No	Yes
b.	Sometimes attached to bonds	Yes	Yes
c.	Maturity greater than one year	Yes	No
d.	Convertible into the stock	Yes	No

b. Consider a bullish spread option strategy using a call option with a 25 exercise price priced at $4 and a call option with a $40 exercise price priced at $2.50. If the price of the stock increases to $50 at expiration and the option is exercised on the expiration date, the net profit per share at expiration (ignoring transaction costs) is:

i. $8.50.

ii. $13.50.

iii. $16.50.

iv. $23.50.

c. A convertible bond sells at $1,000 par with a conversion ratio of 40 and an accompanying stock price of $20 per share. The conversion premium and (percentage) conversion premium, respectively, are:

i. $200 and 20%.

ii. $200 and 25%.

iii. $250 and 20%.

iv. $250 and 25%.

d. A put on XYZ stock with a strike price of $40 is priced at $2.00 per share, while a call with a strike price of $40 is priced at $3.50. What is the maximum per-share loss to the writer of the uncovered put and the maximum per-share gain to the writer of the uncovered call?

	Maximum Loss to Put Writer	Maximum Gain to Call Writer
a.	$38.00	$3.50
b.	$38.00	$36.50
c.	$40.00	$3.50
d.	$40.00	$40.00

e. You create a strap by buying two calls and one put on ABC stock, all with a strike price of $45. The calls cost $5 each, and the put costs $4. If you close your position when ABC is priced at $55, you're per share gain or loss is:

i. $4 loss.

ii. $6 gain.

iii. $10 gain.

iv. $20 gain

f. In the options markets, the purpose of the clearinghouse is to:

Choice A: Issue certificates of ownership.

Choice B: Ensure contract performance.

Choice C: Match up the option buyer who exercises with the original option writer.

i. B only.

ii. B and C only.

iii. C only.

iv. A, B, and C.