The Implied Volatility of an Option

question 26

Multiple Choice

The implied volatility of an option

• A)Is the volatility that would have to be plugged into a given option-pricing model to obtain the observed market price.
• B)Can only be calculated using the Black-Scholes model.
• C)Is the volatility implied by the underlying stock price over a given historical period.
• D)Is equal to the volatility that will actually be realized over the life of the option.

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Definitions:

Weighted Average Periodic Method

An inventory costing method where goods are valued at an average cost, calculated periodically, taking into account the weight of each purchase.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold (COGS).

Lower-of-cost-or-market

An accounting principle requiring that inventory be recorded at the lower of either its original cost or its current market price.

Ending Inventory

The final stock level of products or materials that a company has in hand at the close of an accounting period, rephrased as "terminal inventory balance."