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?

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?

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.