21.1 Option Valuation Introduction

Question 1

Name

the value S₀-X

Option Valuation

Answer 1

intrinsic value of a call option

Option Valuation

Question 2

Fill in the blank

intrinsic value is set equal to zero for ____ or ____ options

Option Valuation

Answer 2

OTM or ATM

Option Valuation

Question 3

Fill in the blank

The difference between the actual call price and the intrinsic value is commonly called the ____

Option Valuation

Answer 3

time value

Option Valuation

Question 4

Which call option should be valued higher

1. A stock whose price may range from $10 to $50 at expiration
2. A stock whose price may range from $20 to $40 at expiration

Both have have an expected average price of $30.

Option Valuation

Answer 4

1. expected payout is $6 vs $3 payout in (2)

Question 5

Value of a call option, if listed variable increases

Exercise price, X

Option Valuation

Answer 5

decreases

Option Valuation

Question 6

Value of a call option, if listed variable increases

volatility, σ

Option Valuation

Answer 6

increases

Option Valuation

Question 7

Value of a call option, if listed variable increases

time to expiration, T - t

Option Valuation

Answer 7

increases

Option Valuation

Question 8

Value of a call option, if listed variable increases

interest rate, r_f

Option Valuation

Answer 8

increases

Option Valuation

Question 9

Value of a call option, if listed variable increases

dividend yield, δ

Option Valuation

Answer 9

decreases

Option Valuation