Question 1

Which variable within the Black-Scholes option pricing formula is the delta?

Accepted Answer

A) S 
B) e−Rt 
C) N(d2) 
D) N(d1) 
E) E 
A) S 
B) e−Rt 
C) N(d2) 
D) N(d1) 
E) E

Question 2

Which one of the Black-Scholes formula parameters must be estimated?

Accepted Answer

A) Stock price 
B) Interest rate 
C) Time to expiration 
D) Variance of the return 
E) Exercise price 
A) Stock price 
B) Interest rate 
C) Time to expiration 
D) Variance of the return 
E) Exercise price

Question 3

The seller of a European call option has the

Accepted Answer

A) obligation to sell the underlying stock at the strike price if the option is exercised. 
B) right but not the obligation to exercise the option on the expiration date. 
C) obligation to buy a stock on a specified date but only at the specified price. 
D) obligation to buy a stock sometime during a specified period of time at the specified price. 
E) obligation to buy a stock at the lower of the exercise price or the market price on the expiration date. 
A) obligation to sell the underlying stock at the strike price if the option is exercised. 
B) right but not the obligation to exercise the option on the expiration date. 
C) obligation to buy a stock on a specified date but only at the specified price. 
D) obligation to buy a stock sometime during a specified period of time at the specified price. 
E) obligation to buy a stock at the lower of the exercise price or the market price on the expiration date.

Question 4

High Mountain has a stock price of $31 a share.The 6-month options have a strike price of $30.The risk-free rate is 3.1 percent and the standard deviation of returns is 26 percent.The value of d1 is 0.35459.What is the value of d2 as it is used in the Black-Scholes option pricing model?

Accepted Answer

A) 0)19091 
B) 0)23048 
C) 0)17176 
D) 0)19323 
E) 0)17074 
A) 0)19091 
B) 0)23048 
C) 0)17176 
D) 0)19323 
E) 0)17074

Question 5

The intrinsic value of a call is I.the value of the call if it were to expire today.
II)equal to the lower bound of a call's value.
III)another name for the market price of a call.
IV)always equal to zero if the call is currently out of the money.

Accepted Answer

A) I and III only 
B) II and IV only 
C) I and II only 
D) II,III,and IV only 
E) I,II,and IV only 
A) I and III only 
B) II and IV only 
C) I and II only 
D) II,III,and IV only 
E) I,II,and IV only

Question 6

You can realize the same value as that derived from stock ownership if you

Accepted Answer

A) sell a put option and invest at the risk-free rate of return. 
B) sell a put and buy a call on the stock as well as invest at the risk-free rate of return. 
C) buy a call option and write a put option on a stock and also lend out funds at the risk-free rate. 
D) lend out funds at the risk-free rate of return and sell a put option on the stock. 
E) borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options. 
A) sell a put option and invest at the risk-free rate of return. 
B) sell a put and buy a call on the stock as well as invest at the risk-free rate of return. 
C) buy a call option and write a put option on a stock and also lend out funds at the risk-free rate. 
D) lend out funds at the risk-free rate of return and sell a put option on the stock. 
E) borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options.

Question 7

The maximum payoff to the seller of a call is

Accepted Answer

A) zero. 
B) equal to the stock price. 
C) equal to the exercise price. 
D) not quantifiable. 
E) unlimited. 
A) zero. 
B) equal to the stock price. 
C) equal to the exercise price. 
D) not quantifiable. 
E) unlimited.

Question 8

The seller of a put option on 100 shares of stock makes the most profit when the

Accepted Answer

A) option is exercised immediately. 
B) stock price exceeds the exercise price throughout the option period. 
C) exercise price exceeds the stock price throughout the option period. 
D) option is converted into shares. 
E) is not exercised until the expiration date. 
A) option is exercised immediately. 
B) stock price exceeds the exercise price throughout the option period. 
C) exercise price exceeds the stock price throughout the option period. 
D) option is converted into shares. 
E) is not exercised until the expiration date.

Question 9

The value of a risky bond is equal to the value of

Accepted Answer

A) a call option plus the value of a default-free bond. 
B) the put option plus the value of a default-free bond. 
C) a default-free bond minus the value of the call option. 
D) a default-free bond minus the value of the put option. 
E) a default-free bond minus the value of the put plus the value of the call. 
A) a call option plus the value of a default-free bond. 
B) the put option plus the value of a default-free bond. 
C) a default-free bond minus the value of the call option. 
D) a default-free bond minus the value of the put option. 
E) a default-free bond minus the value of the put plus the value of the call.

Question 10

Bruno's stock is currently selling for $31.74 a share but is expected to increase to either $32 or $37 a share over the next year.The risk-free rate is 3 percent.What is the current value of a 1-year call option with an exercise price of $35?

Accepted Answer

A) $)27 
B) $)33 
C) $)64 
D) $)89 
E) $)52 
A) $)27 
B) $)33 
C) $)64 
D) $)89 
E) $)52

Question 11

Given an exercise price,E,time to maturity,t,and European put-call parity,the present value of the strike price plus the value of the call option on the stock is equal to the

Accepted Answer

A) price of the stock plus the price of the put option. 
B) present value of the stock minus the put option. 
C) price of the put option minus the market value of the stock. 
D) value of risk-free security,such as a U.S.Treasury bill. 
E) current market value of the stock. 
A) price of the stock plus the price of the put option. 
B) present value of the stock minus the put option. 
C) price of the put option minus the market value of the stock. 
D) value of risk-free security,such as a U.S.Treasury bill. 
E) current market value of the stock.

Question 12

Which of the following statements are correct concerning option values,all else held constant? I.The value of an in-the-money call increases as the price of the underlying stock increases.
II)The value of a call decreases as the exercise price increases.
III)The value of an in-the-money put increases as the price of the underlying stock increases.
IV)The value of a put decreases as the exercise price increases.

Accepted Answer

A) I and III only 
B) II and IV only 
C) I and II only 
D) II and III only 
E) I,II,and IV only 
A) I and III only 
B) II and IV only 
C) I and II only 
D) II and III only 
E) I,II,and IV only

Question 13

Selling a covered call is equivalent to

Accepted Answer

A) selling a put and buying the underlying stock. 
B) buying a put and selling a zero coupon bond. 
C) selling a put and selling the underlying stock. 
D) buying the underlying stock and selling a put. 
E) buying a zero coupon bond and selling a put. 
A) selling a put and buying the underlying stock. 
B) buying a put and selling a zero coupon bond. 
C) selling a put and selling the underlying stock. 
D) buying the underlying stock and selling a put. 
E) buying a zero coupon bond and selling a put.

Question 14

A 35 put option on FKL stock expires today.The current price of the stock is $36.The put is

Accepted Answer

A) at the money. 
B) out of the money. 
C) in the money. 
D) funded. 
E) unfunded. 
A) at the money. 
B) out of the money. 
C) in the money. 
D) funded. 
E) unfunded.

Question 15

Assume the delta of a call option on a firm's assets is 0.481.This means that a new $498,000 project will increase the value of equity by

Accepted Answer

A) $336,259 
B) $349,725 
C) $239,538 
D) $280,790 
E) $208,244 
A) $336,259 
B) $349,725 
C) $239,538 
D) $280,790 
E) $208,244

Question 16

In the Black-Scholes option pricing model,what does the variable R represent?

Accepted Answer

A) The annually compounded risk-free rate of return 
B) The continuously compounded variance 
C) The continuously compounded annual risk-free rate of return 
D) The annually compounded market rate of return 
E) The continuously compounded market rate of return 
A) The annually compounded risk-free rate of return 
B) The continuously compounded variance 
C) The continuously compounded annual risk-free rate of return 
D) The annually compounded market rate of return 
E) The continuously compounded market rate of return

Question 17

An ________ is a derivative security that gives the owner the right,but not the obligation,to sell an asset at a fixed price on the expiration date.

Accepted Answer

A) American call option 
B) European put option 
C) American put option 
D) Euro-American swap 
E) European call option 
A) American call option 
B) European put option 
C) American put option 
D) Euro-American swap 
E) European call option

Question 18

Allison's Market is currently valued at $68,400.The firm has a pure discount bond in the amount of $50,000 that is due in 1 year.The risk-free rate is 3.2 percent.What is the minimum value the firm must maintain if the shareholders are to exercise their call option on the firm in 1 year?

Accepted Answer

A) $50,000.00 
B) $48,449.61 
C) $51,600.00 
D) $66,279.07 
E) $70,588.80 
A) $50,000.00 
B) $48,449.61 
C) $51,600.00 
D) $66,279.07 
E) $70,588.80

Question 19

Carie opted to exercise her May option on April 3rd and received $1,750 in exchange for her shares.She must have owned a(n)

Accepted Answer

A) warrant. 
B) American call. 
C) American put. 
D) European put. 
E) European call. 
A) warrant. 
B) American call. 
C) American put. 
D) European put. 
E) European call.

Question 20

A government guarantee of a firm's existing debt

Accepted Answer

A) has a cost equal to that of a put option. 
B) benefits shareholders at the expense of current bondholders. 
C) converts risk-free debt into risky debt. 
D) is costless to taxpayers. 
E) is essentially exercising a call option on the firm. 
A) has a cost equal to that of a put option. 
B) benefits shareholders at the expense of current bondholders. 
C) converts risk-free debt into risky debt. 
D) is costless to taxpayers. 
E) is essentially exercising a call option on the firm.

Which variable within the Black-Scholes option pricing formula is the delta?

Which one of the Black-Scholes formula parameters must be estimated?

The seller of a European call option has the

High Mountain has a stock price of $31 a share.The 6-month options have a strike price of $30.The risk-free rate is 3.1 percent and the standard deviation of returns is 26 percent.The value of d₁ is 0.35459.What is the value of d₂ as it is used in the Black-Scholes option pricing model?

The intrinsic value of a call is I.the value of the call if it were to expire today. II)equal to the lower bound of a call's value. III)another name for the market price of a call. IV)always equal to zero if the call is currently out of the money.

You can realize the same value as that derived from stock ownership if you

The maximum payoff to the seller of a call is

The seller of a put option on 100 shares of stock makes the most profit when the

The value of a risky bond is equal to the value of

Bruno's stock is currently selling for $31.74 a share but is expected to increase to either $32 or $37 a share over the next year.The risk-free rate is 3 percent.What is the current value of a 1-year call option with an exercise price of $35?

Given an exercise price,E,time to maturity,t,and European put-call parity,the present value of the strike price plus the value of the call option on the stock is equal to the

Selling a covered call is equivalent to

A 35 put option on FKL stock expires today.The current price of the stock is $36.The put is

Assume the delta of a call option on a firm's assets is 0.481.This means that a new $498,000 project will increase the value of equity by

In the Black-Scholes option pricing model,what does the variable R represent?

An ________ is a derivative security that gives the owner the right,but not the obligation,to sell an asset at a fixed price on the expiration date.

Allison's Market is currently valued at $68,400.The firm has a pure discount bond in the amount of $50,000 that is due in 1 year.The risk-free rate is 3.2 percent.What is the minimum value the firm must maintain if the shareholders are to exercise their call option on the firm in 1 year?

Carie opted to exercise her May option on April 3^rd and received $1,750 in exchange for her shares.She must have owned a(n)

A government guarantee of a firm's existing debt

Introduction to Corporate Finance

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Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

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Exam 17: Options Amcq Corporate Finance

Which variable within the Black-Scholes option pricing formula is the delta?

Which one of the Black-Scholes formula parameters must be estimated?

The seller of a European call option has the

High Mountain has a stock price of $31 a share.The 6-month options have a strike price of $30.The risk-free rate is 3.1 percent and the standard deviation of returns is 26 percent.The value of d1 is 0.35459.What is the value of d2 as it is used in the Black-Scholes option pricing model?

The intrinsic value of a call is I.the value of the call if it were to expire today. II)equal to the lower bound of a call's value. III)another name for the market price of a call. IV)always equal to zero if the call is currently out of the money.

You can realize the same value as that derived from stock ownership if you

The maximum payoff to the seller of a call is

The seller of a put option on 100 shares of stock makes the most profit when the

The value of a risky bond is equal to the value of

Bruno's stock is currently selling for $31.74 a share but is expected to increase to either $32 or $37 a share over the next year.The risk-free rate is 3 percent.What is the current value of a 1-year call option with an exercise price of $35?

Given an exercise price,E,time to maturity,t,and European put-call parity,the present value of the strike price plus the value of the call option on the stock is equal to the

Selling a covered call is equivalent to

A 35 put option on FKL stock expires today.The current price of the stock is $36.The put is

Assume the delta of a call option on a firm's assets is 0.481.This means that a new $498,000 project will increase the value of equity by

In the Black-Scholes option pricing model,what does the variable R represent?

An ________ is a derivative security that gives the owner the right,but not the obligation,to sell an asset at a fixed price on the expiration date.

Allison's Market is currently valued at $68,400.The firm has a pure discount bond in the amount of $50,000 that is due in 1 year.The risk-free rate is 3.2 percent.What is the minimum value the firm must maintain if the shareholders are to exercise their call option on the firm in 1 year?

Carie opted to exercise her May option on April 3rd and received $1,750 in exchange for her shares.She must have owned a(n)

A government guarantee of a firm's existing debt

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters

High Mountain has a stock price of $31 a share.The 6-month options have a strike price of $30.The risk-free rate is 3.1 percent and the standard deviation of returns is 26 percent.The value of d₁ is 0.35459.What is the value of d₂ as it is used in the Black-Scholes option pricing model?

Carie opted to exercise her May option on April 3^rd and received $1,750 in exchange for her shares.She must have owned a(n)