Exam 20: Financial Options

As of June of 2016,Facebook (FB)had no debt.Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2018 (19 months)and using the proceeds to pay a special dividend.FB has 2.31 billion shares outstanding,with a market price (June,2016)of $116.62.The risk-free rate over this horizon is 0.25%. There is a call option trading on FB with a strike price of $100 and a price of $29.24.What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets?

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 equity as a call option,the maturity of this option is:

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the minimum possible price for an American put option on Nielson Motors with a strike price of $70?

Which of the following statements is FALSE?

Consider the following equation: C = S - K + dis(K)+ P In this equation,S - K tells us:

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -You have decided to sell (write)five January 2009 put options on Merck with an exercise price of $45 per share.How much money will you receive and are these contracts in or out of 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 price of a one-year American put option on Rearden Metal with a strike price of $70 per share is closest to:

Use the table for the question(s)below. Consider the following information on options from the CBOE for Merck: -Assume you want to buy one option contract with an exercise price closest to being at-the-money and that expires January 2009.The current price that you would have to pay for such a contract is:

Use the figure for the question(s)below. -This graph depicts the payoffs of:

KD Industries stock is currently trading at $32 per share.Consider a put option on KD stock with a strike price of $30.The maximum value of this put option is:

As the seller of an option,you are guaranteed to receive the:

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 equity as a call option,the market value of the assets underlying the call option is:

You are long both a put option and a call option on Rockwood stock with the same expiration date.The exercise price of the call option is $40 and the exercise price of the put option is $30.Graph the payoff of the combination of options at expiration.

Which of the following statements is FALSE?

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation the term K 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%. -In describing Galt's equity as a call option,the strike price of the call option is:

Which of the following statements is FALSE?

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

Graph the payoff at expiration of a short position in a put option with a strike price of $20.

Which of the following will NOT increase the value of a put option?