Lesson #13 Quiz :Financial Markets (Financial Markets) answer 2025

Question 1

What are the two types of options?

✅ A “call” option is the right to buy and a “put” option is the right to sell.
❌ A “put” option is the right to buy and a “call” option is the right to sell.
❌ A “get” option is the right to buy and a “push” option is the right to sell.
❌ A “push” option is the right to buy and a “get” option is the right to sell.

Explanation:
A call option gives the right to buy a stock, while a put option gives the right to sell a stock.

Question 2

Why do some stock options have an exercise price higher than the stock price?

❌ For “call” options, this provides the option to buy at this price if the stock goes up.
❌ New investors often mistake “put” and “call” options.
❌ Stock options sell for negative prices.
✅ These options are “put” options, giving you the option to sell at a higher price.

Explanation:
A put option is valuable when its exercise price is higher than the current stock price, because it allows selling at a premium.

Question 3

Which of the following is NOT a behavioral reason why people buy options?

❌ They are fooled by salespeople.
❌ People focus on certain portfolio risks and buy options for protection.
✅ Portfolio managers usually buy options for clients without them knowing.
❌ People feel emotionally better if they own a put when stocks fall.

Explanation:
Portfolio managers must disclose such actions. Buying options secretly is not a behavioral reason.

Question 4

Are mortgages in the US similar to options from the homeowner’s perspective?

❌ Yes, because they can be sold to Fannie Mae and Freddie Mac.
❌ No in recourse states, yes in non-recourse states.
✅ Yes, because people always have the option to default.
❌ No, because defaulting does not eliminate liability.

Explanation:
Homeowners effectively hold a put option—they can walk away (default) if the house value drops below the mortgage.

Question 5

What is the put-call parity relationship?

❌ Another name for the Black-Scholes model.
❌ A method of arbitrage for options exchanges.
✅ A relationship between the put price, the call price, and the stock price for European-style options.
❌ A formula stating put price minus call price equals stock price.

Explanation:
Put-call parity defines a pricing relationship among put, call, stock price, and strike price for European options.

Question 6

What is a stop-loss order?

❌ An instruction to sell when price rises above a level.
❌ A type of stock that protects against losses.
✅ An instruction to sell shares once the price drops below a specified level.
❌ The same as a free put option.

Explanation:
A stop-loss order limits losses by automatically selling when the price falls below a preset level.

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