Exam 25: Options

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What is the value of a convertible bond with a conversion ratio of 25, face value of $1,000, coupon of 10% and yield of 10 percent? Common stock of this firm is currently selling at $35.

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(Multiple Choice)

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Question 1

Correct Answer:

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The difference between an American call option and a European call option is:

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(Multiple Choice)

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Question 2

Correct Answer:

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Under which condition does a call option approach its upper bound?

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(Multiple Choice)

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Question 3

Correct Answer:

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The value of a call option increases as the time to expiration increases because:

(Multiple Choice)

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Question 4

What is the profit per share for an investor who has purchased a share of stock and two put options with an exercise price of $40, given that the purchase price of the stock was $42, each put cost $2 per share, and the stock was valued at $30 at expiration?

(Multiple Choice)

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Question 5

Owning a call option that has a high probability of being exercised is said to be equivalent to owning the stock.In which way is owning a call not equivalent to owning the stock?

(Multiple Choice)

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Question 6

At what point is the payoff from owning a call option on a stock greater than the payoff from owning the stock itself?

(Multiple Choice)

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Question 7

Stock options have been traded on exchanges since:

(Multiple Choice)

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Question 8

Which of the following statements is correct concerning call options?

(Multiple Choice)

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Question 9

Which of the following changes will decrease the value of a call option?

(Multiple Choice)

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Question 10

At expiration a call option will have no value if the stock price is less than exercise price.

(True/False)

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Question 11

The value of both call and put options increase as the variability of the stock price increases.

(True/False)

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Question 12

When the stock price has risen above the exercise price, the value of a call option is equal to the stock price:

(Multiple Choice)

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Question 13

What price risk is an investor exposed to if she owns a share of stock and has purchased a put option on the stock?

(Essay)

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Question 14

Investors who buy calls or puts have a cap on their possible losses from holding options.Specifically, they cannot lose more than the value of their premium.How does this differ for investors who sell options?

(Essay)

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Question 15

Which of the following option traders receive, rather than pay, a premium?

(Multiple Choice)

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Question 16

Adding warrants as a 'sweetener' to bonds will:

(Multiple Choice)

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Question 17

How does the price of a put option respond to a stock price increase?

(Multiple Choice)

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Question 18

A firm is planning to issue a callable bond with 8% coupon and 10 years to maturity.A straight bond with similar coupon is priced at $1,000.If the value of the issuer's call option is estimated to be $60, what is the value of the callable bond?

(Multiple Choice)

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Question 19

Why is the value of a call option said to increase as the interest rate increases?

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Question 20

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Exam 25: Options

What is the value of a convertible bond with a conversion ratio of 25, face value of $1,000, coupon of 10% and yield of 10 percent? Common stock of this firm is currently selling at $35.

The difference between an American call option and a European call option is:

Under which condition does a call option approach its upper bound?

The value of a call option increases as the time to expiration increases because:

What is the profit per share for an investor who has purchased a share of stock and two put options with an exercise price of $40, given that the purchase price of the stock was $42, each put cost $2 per share, and the stock was valued at $30 at expiration?

Owning a call option that has a high probability of being exercised is said to be equivalent to owning the stock.In which way is owning a call not equivalent to owning the stock?

At what point is the payoff from owning a call option on a stock greater than the payoff from owning the stock itself?

Stock options have been traded on exchanges since:

Which of the following statements is correct concerning call options?

Which of the following changes will decrease the value of a call option?

At expiration a call option will have no value if the stock price is less than exercise price.

The value of both call and put options increase as the variability of the stock price increases.

When the stock price has risen above the exercise price, the value of a call option is equal to the stock price:

What price risk is an investor exposed to if she owns a share of stock and has purchased a put option on the stock?

Investors who buy calls or puts have a cap on their possible losses from holding options.Specifically, they cannot lose more than the value of their premium.How does this differ for investors who sell options?

Which of the following option traders receive, rather than pay, a premium?

Adding warrants as a 'sweetener' to bonds will:

How does the price of a put option respond to a stock price increase?

A firm is planning to issue a callable bond with 8% coupon and 10 years to maturity.A straight bond with similar coupon is priced at $1,000.If the value of the issuer's call option is estimated to be $60, what is the value of the callable bond?

Why is the value of a call option said to increase as the interest rate increases?

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The Time Value of Money

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Introduction to Risk, Return, and the Opportunity Cost of Capital

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Introduction to Corporate Financing and Governance

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