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Ch.15 1. A call option is available on the stock of Rally Corporation. The exercise price is $60. The option price is $7. Rally stock is currently selling for $70 per share. What is the "intrinsic value of the option? a. So b. $3 C. S2 d. S10. 2. George purchased a call option on an "index" of stocks. He is only permitted to exercise it on one specific date. He has a: a Long European option b. Long American option. c. Long position in a futures contract. d. Long position in a put option 3. Investors want to protect against downside risk. Which of the following transactions creates a floor, such that losses are limited? a. Buying a futures contract. b. Buying a call option c. Selling a call option. d. Buying a put option 4. Parker believes that Ace Stock is poised to increase. Which of the following strategies could he make money with if the stock increases? a. Buy a call on Ace. b. Sell a put on Ace. c. Both a and b. d. Neither a nor b. S. An investor buys 1 XYZ November 60 call at SS. When XYZ increases to 70, the call is exercised and the stock is immediately sold. What is the result? a. A profit of $5. b. A profit of $50 c. A profit of $500. d. A profit of $1,000 6. An "out of the money put: a. Has an intrinsic value strike price. Is where the stock price 0. 7. Hayden bought 15 ABC June 60 calls at $7 and bought 15 ABC June 60 puts at $6.10. The maximum possible gain on this combination of positions is: a Unlimited b. $1,350. c. $10,500 d. $40,000 8 Which of the following is correct regarding a long straddle? a. Total premiums paid is the maximum loss. b. The gain potential is limited. c. Volatility is not expected. d. The investor is bearish. 9. Jack owns a convertible bond with a $1,000 face value that be exchanged for 25 shares of WUF stock, which is trading at $50 per share. The conversion value equals? a. $0. b. $250. c. $1,000 d. $1,250

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