Exam 20: Financial Options

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to:

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -How many of the January 2009 call options are in the money?

Use the following information to answer the question(s)below. Consider an American put option on Rearden Metal stock with a strike price of $60 and one year to expiration.Assume that Rearden pays no dividends,its stock is currently trading at $15 per share,and the one-year interest rate is 5%.Also assume that it is optimal to exercise this put option early. -The maximum value of a one-year American call option on Rearden Metal with a strike price of $60 per share is closest to:

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -How many of the January 2009 put options are in the money?

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation the term C refers to:

A credit default swap is essentially a:

The payoff to the holder of a call option is given by:

Luther Industries is currently trading for $27 per share.The stock pays no dividends.A one-year European put option on Luther with a strike price of $30 is currently trading for $2.60.If the risk-free interest rate is 6% per year,then the price of a one-year European call option on Luther with a strike price of $30 will be closest to:

Which of the following statements is FALSE?

The writer of a call option has:

With a(n)________,the buyer pays a premium to the seller and receives a payment from the seller to make up for the loss if the underlying bond defaults.

Use the following information to answer the question(s)below. Galt Industries is trading for $20 per share and has 25 million shares outstanding.Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%. -Which of the following best describes Galt's debt using a put option?

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation the term S refers to:

Use the following information to answer the question(s)below. Galt Industries is trading for $20 per share and has 25 million shares outstanding.Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%. -Which of the following best describes Galt's debt using a call option?

Which of the following statements is FALSE?

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the maximum possible price for a call option on Nielson Motors?

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -The open interest for the January 2009 put option that is closest to being at-the-money is:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Galt Industries is trading for $20 per share and has 25 million shares outstanding.Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%. -In describing Galt's debt as a put option,the strike price of the put option is: