Question 1

Option buyers can have a(n) __________ of exercising their options.Options sellers can have a(n) __________ of exercising their options.

Accepted Answer

A) Obligation; obligation 
B) Obligation; right 
C) Right; right 
D) Right; obligation 
A) Obligation; obligation 
B) Obligation; right 
C) Right; right 
D) Right; obligation

Question 2

A share of stock is currently priced at $20 and will change with equal likelihood to either $50 or $10.A call option with a $25 exercise price is available on the stock.How many shares of stock must be purchased to replicate the payoff from owning one call option?

Accepted Answer

A) $.50 shares 
B) $.75 shares 
C) $.80 shares 
D) $1.25 shares Given the possible range of stock values, the option can range in price from $25 to $0.Then, 
A) $.50 shares 
B) $.75 shares 
C) $.80 shares 
D) $1.25 shares Given the possible range of stock values, the option can range in price from $25 to $0.Then,

Question 3

The floor of a convertible bond will be the value of the underlying bond.

Accepted Answer

A) True 
 B)False

Question 4

A decrease in which of the following terms will cause an increase in the call value of an option?

Accepted Answer

A) Interest rates 
B) Time to maturity 
C) Exercise price 
D) Volatility of the stock 
A) Interest rates 
B) Time to maturity 
C) Exercise price 
D) Volatility of the stock

Question 5

The buyer of a call option has the obligation to buy shares at the strike price.

Accepted Answer

A) True 
 B)False

Question 6

Unlike call options, the option to abandon a real asset project does not become more valuable as time to expiration increases.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) The stock seller must pay the call owner more interest 
B) The present value of the strike price is reduced 
C) As interest rates increase, stock prices increase 
D) Interest rate increases reduce the option premium 
A) The stock seller must pay the call owner more interest 
B) The present value of the strike price is reduced 
C) As interest rates increase, stock prices increase 
D) Interest rate increases reduce the option premium

Question 8

Determine the payoff and profits for a call option costing $18 with an exercise price of $180, and a stock price (at expiration) with a value of $155.

Accepted Answer

The answer of Determine the payoff and profits for a...

Question 9

A callable bond will have a lower value than a straight bond with the same coupon rate and maturity.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A) ($16) 
B) ($6) 
C) ($4) 
D) $4 profit per share = value of stock at expiration + 2(value of put at expiration) - price of stock - 2(put premium)
= 30 + 2(40 - 30) - 42 - 2(2) 
A) ($16) 
B) ($6) 
C) ($4) 
D) $4 profit per share = value of stock at expiration + 2(value of put at expiration) - price of stock - 2(put premium)
= 30 + 2(40 - 30) - 42 - 2(2)

Question 11

Which graph represents a buying a put option?

Accepted Answer

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

Question 12

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 13

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 14

It has been determined that 0.5 shares of stock should be purchased with borrowed funds to replicate the payoff to one call option.What is the option's strike price if the stock could range in value from $110 to $10 at the expiration of the option?

Accepted Answer

A) $40 
B) $50 
C) $60 
D) $70 number of shares to replicate one call = 
A) $40 
B) $50 
C) $60 
D) $70 number of shares to replicate one call =

Question 15

What options may be provided in financial securities?

Accepted Answer

Many of the securities that firms issue

Question 16

A writer of a call option expects the stock price to:

Accepted Answer

A) Decrease 
B) Increase 
C) Remain unchanged 
D) Cash dividends quarterly 
A) Decrease 
B) Increase 
C) Remain unchanged 
D) Cash dividends quarterly

Question 17

Which is the best definition of a warrant?

Accepted Answer

A) The right to buy an asset at a fixed price during a particular time period 
B) The right to sell an asset at a fixed price during a particular time period 
C) A security that gives the holder the right to purchase shares of a stock at a fixed price over a period of time 
D) The act of buying or selling the underlying asset via the option contract 
A) The right to buy an asset at a fixed price during a particular time period 
B) The right to sell an asset at a fixed price during a particular time period 
C) A security that gives the holder the right to purchase shares of a stock at a fixed price over a period of time 
D) The act of buying or selling the underlying asset via the option contract

Question 18

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 19

Jennifer sold a call option on XXX Corp.with an exercise price of $50.The option expires tomorrow and XXX is currently trading at $40.The option premium was $3 per share.What is Jennifer's expected profit <loss> per share at tomorrow's expiration?

Accepted Answer

A) ($3) 
B) $3 
C) $7 
D) $10 
A) ($3) 
B) $3 
C) $7 
D) $10

Question 20

If a convertible bond can be thought of as a straight bond with a call option, then the call is owned by the ___________ and the strike price is the ___________.

Accepted Answer

A) Debt issuer; stock price 
B) Debt issuer; straight bond value 
C) Bond investor; stock price 
D) Bond investor; straight bond value 
A) Debt issuer; stock price 
B) Debt issuer; straight bond value 
C) Bond investor; stock price 
D) Bond investor; straight bond value

Exam 25: Conclusion

Option buyers can have a(n) __________ of exercising their options.Options sellers can have a(n) __________ of exercising their options.

A share of stock is currently priced at $20 and will change with equal likelihood to either $50 or $10.A call option with a $25 exercise price is available on the stock.How many shares of stock must be purchased to replicate the payoff from owning one call option?

The floor of a convertible bond will be the value of the underlying bond.

A decrease in which of the following terms will cause an increase in the call value of an option?

The buyer of a call option has the obligation to buy shares at the strike price.

Unlike call options, the option to abandon a real asset project does not become more valuable as time to expiration increases.

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

Determine the payoff and profits for a call option costing $18 with an exercise price of $180, and a stock price (at expiration) with a value of $155.

A callable bond will have a lower value than a straight bond with the same coupon rate and maturity.

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?

Which graph represents a buying a put option?

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

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

It has been determined that 0.5 shares of stock should be purchased with borrowed funds to replicate the payoff to one call option.What is the option's strike price if the stock could range in value from $110 to $10 at the expiration of the option?

What options may be provided in financial securities?

A writer of a call option expects the stock price to:

Which is the best definition of a warrant?

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

Jennifer sold a call option on XXX Corp.with an exercise price of $50.The option expires tomorrow and XXX is currently trading at $40.The option premium was $3 per share.What is Jennifer's expected profit <loss> per share at tomorrow's expiration?

If a convertible bond can be thought of as a straight bond with a call option, then the call is owned by the ___________ and the strike price is the ___________.

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

What We Do and Do Not Know About Finance

Filters

Option buyers can have a(n) of exercising their options.Options sellers can have a(n) of exercising their options.

If a convertible bond can be thought of as a straight bond with a call option, then the call is owned by the _ and the strike price is the _.