Question 1

What options may be provided in financial securities?

Accepted Answer

Many of the securities that firms issue

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

What options may be provided in financial securities?

Accepted Answer

Many of the securities that firms issue

Question 4

Of the following four put options that can be purchased on a stock, which would you expect to have the highest price?

Accepted Answer

A) September put; $65 exercise price 
B) September put; $75 exercise price 
C) December put; $65 exercise price 
D) December put; $75 exercise price 
A) September put; $65 exercise price 
B) September put; $75 exercise price 
C) December put; $65 exercise price 
D) December put; $75 exercise price

Question 5

What is the primary difference between an American and European option?

Accepted Answer

A) The value at which the option can be exercised. 
B) The number of options that can be exercised. 
C) The time period when the option can be exercised. 
D) The manner options are bought or sold. 
A) The value at which the option can be exercised. 
B) The number of options that can be exercised. 
C) The time period when the option can be exercised. 
D) The manner options are bought or sold.

Question 6

Convertible bonds give the investor the option to buy the firm's stock in exchange for the value of the underlying bond.

Accepted Answer

A) True 
 B)False

Question 7

Three months back you bought for $4 a put option on a stock with an exercise price of $100.If the stock price at expiration of this option is $92, what is your return on investment?

Accepted Answer

A) 200 percent 
B) 150 percent 
C) 100 percent 
D) 50 percent 
A) 200 percent 
B) 150 percent 
C) 100 percent 
D) 50 percent

Question 8

What is the worst-case profitability scenario for an investor who sold a call on the firm's stock for a premium of $10 and a strike price of $100?

Accepted Answer

A) $90 per share profit 
B) $10 per share profit 
C) $0 per share profit (break-even) 
D) Unlimited losses 
A) $90 per share profit 
B) $10 per share profit 
C) $0 per share profit (break-even) 
D) Unlimited losses

Question 9

Stock price volatility is beneficial to option holders.

Accepted Answer

A) True 
 B)False

Question 10

When does a change in the value of a call option come the closest to matching the price change in a share of stock?

Accepted Answer

A) When the stock is priced far above the strike price. 
B) When the stock is priced far below the strike price. 
C) When the stock is priced very near the strike price. 
D) Changes in call value always come close to matching changes in stock price. 
A) When the stock is priced far above the strike price. 
B) When the stock is priced far below the strike price. 
C) When the stock is priced very near the strike price. 
D) Changes in call value always come close to matching changes in stock price.

Question 11

Which graph represents a buying a call option?

Accepted Answer

The answer of Which graph represents a buying a call...

Question 12

Calculate the profit per share for an investor that exercises a put option with a strike price of $60 when the stock is selling for $46 and the premium for the put option was $4.

Accepted Answer

A) ($14) 
B) ($10) 
C) $10 
D) $18 
A) ($14) 
B) ($10) 
C) $10 
D) $18

Question 13

An investor who is buying a put option is expecting:

Accepted Answer

A) stock prices to go up. 
B) stock prices to go down. 
C) interest rates to go up. 
D) interest rates to go down. 
A) stock prices to go up. 
B) stock prices to go down. 
C) interest rates to go up. 
D) interest rates to go down.

Question 14

Only at the expiration date can an investor expect to find the value of call options above their lower bound.

Accepted Answer

A) True 
 B)False

Question 15

The payoffs from holding a call option can be replicated by:

Accepted Answer

A) borrowing money to buy a put option. 
B) borrowing money to invest in the stock. 
C) simultaneously selling a call and buying a put. 
D) simultaneously buying a share and buying a put. 
A) borrowing money to buy a put option. 
B) borrowing money to invest in the stock. 
C) simultaneously selling a call and buying a put. 
D) simultaneously buying a share and buying a put.

Question 16

What options may be present in capital investment proposals?

Accepted Answer

The importance of building flexibility i

Question 17

The value of a convertible bond is less than the value of a straight bond with similar coupon and maturity.

Accepted Answer

A) True 
 B)False

Question 18

Firms spend an increasing amount of time evaluating real options, which are:

Accepted Answer

A) options on real assets such as an option to abandon. 
B) call and put options traded on organized exchanges. 
C) call options such as warrants and convertible bonds. 
D) put options such as held by shareholders of a firm with financial leverage. 
A) options on real assets such as an option to abandon. 
B) call and put options traded on organized exchanges. 
C) call options such as warrants and convertible bonds. 
D) put options such as held by shareholders of a firm with financial leverage.

Question 19

Assume that a share of stock is currently selling for $80, that a call option can be purchased for an $8 premium and an exercise price of $80, and that a put option can be purchased for a $4 premium and an exercise price of $80.If the investor buys one share, one call, and one put option, what type of price movements will be desirable? Illustrate the investor's potential profits.

Accepted Answer

If the likelihood of upward or downward

Question 20

How, in general, is value derived from options on real assets?

Accepted Answer

When the flexibility is retained in capi

Exam 25: Options

What options may be provided in financial securities?

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

What options may be provided in financial securities?

Of the following four put options that can be purchased on a stock, which would you expect to have the highest price?

What is the primary difference between an American and European option?

Convertible bonds give the investor the option to buy the firm's stock in exchange for the value of the underlying bond.

Three months back you bought for $4 a put option on a stock with an exercise price of $100.If the stock price at expiration of this option is $92, what is your return on investment?

What is the worst-case profitability scenario for an investor who sold a call on the firm's stock for a premium of $10 and a strike price of $100?

Stock price volatility is beneficial to option holders.

When does a change in the value of a call option come the closest to matching the price change in a share of stock?

Which graph represents a buying a call option?

Calculate the profit per share for an investor that exercises a put option with a strike price of $60 when the stock is selling for $46 and the premium for the put option was $4.

An investor who is buying a put option is expecting:

Only at the expiration date can an investor expect to find the value of call options above their lower bound.

The payoffs from holding a call option can be replicated by:

What options may be present in capital investment proposals?

The value of a convertible bond is less than the value of a straight bond with similar coupon and maturity.

Firms spend an increasing amount of time evaluating real options, which are:

How, in general, is value derived from options on real assets?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

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

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Risk Management

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