Finance Section:

1. When the hedge ratio is adjusted in the binomial model, the transactions must be done in the option.

a. True

b. False

2. An order placed by an investor for the broker to buy an option at the best available price is called a market order.

a. True

b. False

3. The time value of a call is greatest when the stock price is very high.

a. True

b. False

4. If a call is overpriced and you buy the call and sell short the stock, it is equivalent to investing money at less than the risk-free rate.

a. True

b. False

5. CBOE option market makers are also called liquidity providers.

a. True

b. False

6. Most investors close their positions by exercising their options.

a. True

b. False

7. The binomial probabilities are probabilities if investors were risk neutral.

a. True

b. False

8. Indices measuring options market activity are simple to construct and widely quoted.

a. True

b. False

9. A put option increases in value when the stock price decreases.

a. True

b. False

10. If there is one period remaining and no possibility of the option expiring in-the-money, the hedge ratio will be zero.

a. True

b. False