Exam 18: Derivatives

A 6-month put option on Makler Corp.'s stock has a strike price of $45 and sells in the market for $8.90. Makler's current stock price is $41. What is the exercise value of the option?

Deeble Construction Co.'s stock is trading at $30 a share. There are also call options on the company's stock, some with an exercise price of $25 and some with an exercise price of $35. All options expire in 3 months. Which of the following best describes the value of these options?

Looking at The Wall Street Journal you observe that the settlement price on a hypothetical 10-year, semiannual payment, 6% coupon Treasury note is 105-21. If the note has a $1,000 par value, what is the implied Treasury note rate?

One objective of risk management can be to reduce the volatility of a firm's cash flows.

Which of the following statements is most CORRECT?

There are call options on the common stock of XYZ Corporation. Which of the following best describes the factors that affect call option values?

Which of the following events is likely to decrease the value of call options on the common stock of GCC Company?

Which of the following statements concerning risk management is NOT CORRECT?

An option that gives the holder the right to buy a stock at a specified price at some time in the future is called a(n)

Suppose a CBOT 10-year U.S. Treasury note futures contract has a quoted price of 103-18. What is the implied annual interest rate inherent in the futures contract?

Which of the following is NOT an example of a derivative security?

Which of the following statements regarding factors that affect call option prices is CORRECT?

Warnes Motors' stock is trading at $20 a share. Three-month call options with an exercise price of $20 have a price of $1.50. Which of the following will occur if the stock price increases 10% to $22 a share?

A 6-month call option on Meyers Inc.'s stock has a strike price of $45 and sells in the market for $8.25. Meyers' current stock price is $48. What is the option premium?

An option that gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Lissa Co.'s stock price is currently $30.25. A 6-month call option on Lissa's stock has a strike price of $25 and has an expected volatility of 40% (i.e., expected standard deviation = 40%). The risk-free rate is 6%. According to the Black-Scholes option pricing model, what is the value of the option?

A commercial bank recognizes that its net income suffers whenever interest rates increase. Which of the following strategies would protect the bank against rising interest rates?

Interest rate swaps allow a firm to exchange fixed for floating-rate payments, but a swap cannot reduce actual net interest expenses.

Suppose a CBOT 10-year U.S. Treasury note futures contract has a quoted price of 88-30. If annual interest rates go down by 1.00 percentage point, what is the gain or loss on the futures contract? (Assume a $1,000 par value, round the new interest rate to 4 decimal places when written as a decimal, and round the change in price up to the nearest whole dollar.)

In theory, reducing the volatility of its cash flows will always increase a company's value.