Series 7: Chapter 5 Practice Questions

Chapter 5 Practice Questions

1. 1. Sally purchases an ABC Apr 30 call @ 2.50. The stock is currently selling at 31. What is her maximum gain?
2. A. Unlimited
3. B. $250
4. C. $3,000
5. D. $150
6. 2. Sally purchases three ABC Apr 30 calls @ 2.50. The stock is currently trading at 31. What is her breakeven point?
7. A. $30
8. B. $32.50
9. C. $37.50
10. D. $33.50
11. 3. Jon shorts three ABC Apr 50 calls @ 3.50. He has no other positions in the stock. The stock is currently selling at 51. What is his maximum gain?
12. A. Unlimited
13. B. $1,050
14. C. $750
15. D. $3,950
16. 4. Jessica purchases an ABC Apr 30 put @ 2.50. The stock is currently selling at 31. What is her maximum gain?
17. A. Unlimited
18. B. $250
19. C. $3,000
20. D. $2,750
21. 5. Sandy shorts four ABC Apr 30 puts @ 2.50. The stock is currently selling at 31. What is her maximum loss?
22. A. $700
23. B. $1,000
24. C. $12,000
25. D. $11,000
26. 6. Sandy shorts four ABC Apr 30 puts @ 2.50. The stock is currently selling at 31. Which of the following is true?
27. A. The options are in the money.
28. B. The options are out of the money.
29. C. The options are at the money.
30. D. We cannot tell whether the options are in or out of the money until the option is exercised.
31. 7. Jon shorts three ABC Apr 50 calls @ 3.50. He has no other positions in the stock. The stock is trading at 51. Which of the following is true?
32. A. The intrinsic value of the option is $1.
33. B. The intrinsic value of the option is $2.50.
34. C. The intrinsic value of the option is $0.
35. D. The intrinsic value of the option cannot be determined until the option is exercised.
36. 8. Sandy shorts an ABC Apr 30 put @ 2.50 when the stock is selling at 31. Which of the following is true about the intrinsic value of the option at the time of t