Finance MCQs FPSC NTS PPSC Past Papers Test Questions

The answer is: (C) its returns are uncertain
When returns on an investment are uncertain, it is termed risky. Therefore, investing in stocks is considered a risky investment.

In Finance, risk is measured by calculating the

(A) mean
(B) variance
(C) standard deviation
(D) kurtosis

The answer is: (C) standard deviation
In Finance, risk is measured by calculating the standard deviation. For example, risk in stocks investment is measured by calculating standard deviation of the daily returns.

The value of an option at the time of expiration is a function of:

(I) volatility
(II) interest rate
(III) stock price
(IV) exercise price
(A) I only
(B) III only
(C) I and II
(D) III and IV

The answer is: (D) III and IV
The value of an option at the time of its expiration is a function of the stock price at expiration (ST) and the strike price (K). For example, in the case of a call option
Call Option = max(ST-K,0)
And, in the case of a put option
Put Option = max(K-ST,0)

If market price of a share at expiration is $100 and exercise price is $90, then value of a call option at expiration is

(A) –$10
(B) $0
(C) $1
(D) $10

The answer is: (B) $0
Here, price at expiration = ST = 100
Exercise price = K = 90
Call Option = max(ST-K,0) = max(100-90,0) = max(10,0)
So, between 10 and 0, the maximum value is 10.