Reference no: EM13515844
Multiple Choice
1.In the Black-Scholes Option Pricing Model, what is the minimum and maximum value of N(d1)?
a.minus infinity to plus infinity
b.minus infinity to zero
c.minus one to zero
d.zero to plus infinity
2.In the Black-Scholes Option Pricing Model, if interest rates rise, the price of a call option will
a.decline.
b.remain unchanged.
c.increase.
d.decline, then increase.
3.All of the following are assumptions of the Black-Scholes Option Pricing Model except
a.markets are efficient.
b.no dividends.
c.interest rates are constant.
d.investors are generally bullish.
4.The expected volatility of the underlying asset is known as
a.sigma.
b.delta.
c.gamma.
d.theta.
5.Option value is mostly concerned with
a.historical volatility
b.average daily volatility.
c.expected future volatility.
d.market average volatility.
6.If volatility increases, call premiums _____ and put premiums _____.
a.increase, increase
b.increase, decrease
c.decrease, increase
d.decrease, decrease
7.A method of adjusting for cash dividends is the _____ model.
a.Fisher
b.Sharpe
c.Merton
d.Miller
8.Everything else being equal, an American option will sell for ________ a European option.
a.more than
b.less than
c.the same as
d.None of the above; cannot be determined
9.The Black-Scholes model assumes a _____ distribution.
a.lognormal
b.uniform
c.triangular
d.Poisson
10.Which of the following is most accurate?
a.Implied volatility is usually less than historical volatility.
b.Implied volatility is usually greater than historical volatility.
c.Implied volatility is usually equal to historical volatility.
d.There is no reliable connection between historical and implied volatility.
11.Option traders often price options in _____ units.
a.delta
b.volatility
c.theta
d.Eurodollar
12.The plot of implied volatility values as a function of the stock price is known as a
a.yield curve.
b.volatility smile.
c.volatility decay plot.
d.volatility diffusion diagram.
13.The option to defer something is an example of a(n) _____ option.
a.exotic
b.lookback
c.real
d.barrier
14.The Black-Scholes model works best with options that are
a.deep out-of-the-money.
b.out-of-the-money
c.at-the-money
d.in-the-money.