3.) If the price of Mountain Hawk stock declines to $88.00, which options strategy will most
likely have the highest value at expiration?
A. Bull spread
B. Straddle
C. Bear spread
Answer = C
“Risk Management Application of Option Strategies,” Don M. Chance
Sections 2.3, 2.4
The bear spread strategy will have a value of $10. A bear (put) spread entails buying the
put with the higher exercise price ($100) and selling the put with the lower exercise
price ($90).
Value at expiration = max(0, 100 – 88) – max(0, 90 – 88) = 10.
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