# chapter 3

Quiz by Beatriz Peregrina Viñolo, updated more than 1 year ago
 Created by Beatriz Peregrina Viñolo over 6 years ago
1013
1

### Description

Quiz on chapter 3, created by Beatriz Peregrina Viñolo on 11/26/2014.

## Resource summary

### Question 1

Question
A strategy consists of buying a market index product at \$830 and longing a put on the index with a strike of \$830. If the put premium is \$18.00 and interest rates are 0.5% per month, what is the profit or loss at expiration (in 6 months) if the market index is \$810?
• \$20.00 gain
• \$18.65 gain
• \$36.29 loss
• \$43.76 loss

### Question 2

Question
A strategy consists of buying a market index product at \$830 and longing a put on the index with a strike of \$830. If the put premium is \$18.00 and interest rates are 0.5% per month, compute the profit or loss from the long index position by itself expiration (in 6 months) if the market index is \$810.
• \$45.21 loss
• \$21.22 loss
• \$18.00 gain
• \$24.25 gain

### Question 3

Question
A strategy consists of buying a market index product at \$830 and longing a put on the index with a strike of \$830. If the put premium is \$18.00 and interest rates are 0.5% per month, compute the profit or loss from the long put position by itself (in 6 months) if the market index is \$810.
• \$3.45 gain
• \$1.45 gain
• \$2.80 loss
• \$1.36 loss

### Question 4

Question
A strategy consists of buying a market index product at \$830 and longing a put on the index with a strike of \$830. If the put premium is \$18.00 and interest rates are 0.5% per month, what is the estimated price of a call option with an exercise price of \$830?
• \$42.47
• \$45.26
• \$47.67
• \$49.55

### Question 5

Question
A strategy consists of longing a put on the market index with a strike of 830 and shorting a call option on the market index with a strike price of 830. The put premium is \$18.00 and the call premium is \$44.00. Interest rates are 0.5% per month. Determine the net profit or loss if the index price at expiration is \$830 (in 6 months).
• \$0
• \$23.67 loss
• \$26.79 gain
• \$28.50 gain

### Question 6

Question
A strategy consists of longing a put on the market index with a strike of 830 and shorting a call option on the market index with a strike price of 830. The put premium is \$18.00 and the call premium is \$44.00. Interest rates are 0.5% per month. What is the breakeven price of the market index for this strategy at expiration (in 6 months)?
• \$802.12
• \$830.00
• \$855.21
• \$866.32

### Question 7

Question
At the 6-month point, what is the breakeven index price for a strategy of longing the market index at a price of 830? Interest rates are 0.5% per month.
• \$802.12
• \$830.00
• \$855.21
• \$866.32

### Question 8

Question
The \$850 strike put premium is \$25.45 and the \$850 strike call is selling for \$30.51. Calculate the breakeven index price for a strategy employing a short call and long put that expires in 6 months. Interest rates are 0.5% per month.
• \$822.67
• \$824.79
• \$830.76
• \$875.82

### Question 9

Question
What is the maximum profit that an investor can obtain from a strategy employing a long 830 call and a short 850 call over 6 months? Interest rates are 0.5% per month.
• \$6.80
• \$7.68
• \$9.24
• \$12.32

### Question 10

Question
What is the maximum loss that an investor can obtain over 6 months from a strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month.
• \$6.80
• \$7.68
• \$9.24
• \$12.32

### Question 11

Question
What is the breakeven point that an investor can obtain from a 6-month strategy employing a long 830 call and a short 850 call? Interest rates are 0.5% per month.
• \$832.82
• \$842.32
• \$852.22
• \$862.92

### Question 12

Question
The owner of a house worth \$180,000 purchases an insurance policy at the beginning of the year for a price of \$1,000. The deductible on the policy is \$5,000. If after 6 months the homeowner experiences a casualty loss valued at \$45,000, what is the homeowner's net gain/loss? Assume an opportunity cost of capital of 4.0% annually.
• \$0
• \$1,000
• \$5,000
• \$6,020

### Question 13

Question
Using option strategy concepts, what is the value of an insured home, if the value of the uninsured home is \$220,000, the house was purchased for \$180,000 and the house has a casualty policy costing \$500 with a \$2,000 deductible? Ignore interest costs.
• \$180,000
• \$217,500
• \$220,000
• \$222,500

### Question 14

Question
An investor purchases a call option with an exercise price of \$55 for \$2.60. The same investor sells a call on the same security with an exercise price of \$60 for \$1.40. At expiration, 3 months later, the stock price is \$56.75. All other things being equal and given an annual interest rate of 4.0%, what is the net profit or loss to the investor?
• \$1.21 loss
• \$1.50 loss
• \$0.54 gain
• \$1.65 gain

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