Question 1

What is the value of one November 35 put contract?

Accepted Answer

A)  $70 
B)  $460 
C)  $510 
D)  $4,600 
E)  $5,100 
A)  $70 
B)  $460 
C)  $510 
D)  $4,600 
E)  $5,100 C

Question 2

The delta of a call measures:

Accepted Answer

A)  the change in the ending stock value. 
B)  the change in the ending option value. 
C)  the swing in the price of the call relative to the swing in stock price. 
D)  the ratio of the change in the exercise price to the change in the stock price. 
E)  None of these. 
A)  the change in the ending stock value. 
B)  the change in the ending option value. 
C)  the swing in the price of the call relative to the swing in stock price. 
D)  the ratio of the change in the exercise price to the change in the stock price. 
E)  None of these. C

Question 3

Which one of the following provides the option of selling a stock anytime during the option period at a specified price even if the market price of the stock declines to zero?

Accepted Answer

A)  American call 
B)  European call 
C)  American put 
D)  European put 
E)  either an American or a European put 
A)  American call 
B)  European call 
C)  American put 
D)  European put 
E)  either an American or a European put C

Question 4

A _____ is a derivative security that gives the owner the right,but not the obligation,to buy an asset at a fixed price for a specified period of time.

Accepted Answer

A)  futures contract 
B)  call option 
C)  put option 
D)  swap 
E)  forward contract 
A)  futures contract 
B)  call option 
C)  put option 
D)  swap 
E)  forward contract

Question 5

Jillian owns an option which gives her the right to purchase shares of WAN stock at a price of $20 a share. Currently,WAN stock is selling for $24.50. Jillian would like to profit on this stock but is not permitted to exercise her option for another two weeks. Which of the following statements apply to this situation?
I. Jillian must own a European call option.
II. Jillian must own an American put option.
III. Jillian should sell her option today if she feels the price of WAN stock will decline significantly over the next two weeks.
IV. Jillian cannot profit today from the price increase in WAN stock.

Accepted Answer

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

Question 6

If you consider the equity of a firm to be an option on the firm's assets then the act of paying off debt is comparable to _____ on the assets of the firm.

Accepted Answer

A)  purchasing a put option 
B)  purchasing a call option 
C)  exercising an in-the-money put option 
D)  exercising an in-the-money call option 
E)  selling a call option 
A)  purchasing a put option 
B)  purchasing a call option 
C)  exercising an in-the-money put option 
D)  exercising an in-the-money call option 
E)  selling a call option

Question 7

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of ______

Accepted Answer

A)  put; $62,000. 
B)  put; $50,000. 
C)  warrant; $62,000. 
D)  call; $62,000. 
E)  call; $50,000. 
A)  put; $62,000. 
B)  put; $50,000. 
C)  warrant; $62,000. 
D)  call; $62,000. 
E)  call; $50,000.

Question 8

Several rumors concerning Wyslow,Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation,you decide to buy both a one-month put and a one month call option on this stock with an exercise price of $15. You purchased the call at a quoted price of $.40 and the put at a price of $2.30. What will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire?

Accepted Answer

A)  $190 
B)  $230 
C)  $830 
D)  $910 
E)  $1,500 
A)  $190 
B)  $230 
C)  $830 
D)  $910 
E)  $1,500

Question 9

Given the following information,what is the value of d2 as it is used in the Black-Scholes Option Pricing Model?
Stock price $42
Time to expiration .25
Risk-free rate .055
Standard deviation .50
D1 .375161

Accepted Answer

A)  .021608 
B)  .125161 
C)  .175608 
D)  .200161 
E)  .250161 
A)  .021608 
B)  .125161 
C)  .175608 
D)  .200161 
E)  .250161

Question 10

Several rumors concerning Wyslow,Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation,you decide to buy both a one-month put and a one month call option on this stock with an exercise price of $15. You purchased the call at a quoted price of $.20 and the put at a price of $2.10. What will be your total profit or loss on these option positions if the stock price is $4 on the day the options expire?

Accepted Answer

A)  -$230 
B)  $870 
C)  $890 
D)  $910 
E)  $1,310 
A)  -$230 
B)  $870 
C)  $890 
D)  $910 
E)  $1,310

Question 11

The common stock of Mercury Motors is selling for $43.90 a share. U.S. Treasury bills are currently yielding 4.5%. What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?

Accepted Answer

A)  $6.12 
B)  $6.40 
C)  $6.69 
D)  $7.67 
E)  $8.01 
A)  $6.12 
B)  $6.40 
C)  $6.69 
D)  $7.67 
E)  $8.01

Question 12

The maximum value of a call option is equal to:

Accepted Answer

A)  the strike price minus the initial cost of the option. 
B)  the exercise price plus the price of the underlying stock. 
C)  the strike price. 
D)  the price of the underlying stock. 
E)  the purchase pricE. 
A)  the strike price minus the initial cost of the option. 
B)  the exercise price plus the price of the underlying stock. 
C)  the strike price. 
D)  the price of the underlying stock. 
E)  the purchase pricE.

Question 13

Tele-Tech Com announces a major expansion into Internet services. This announcement causes the price of Tele-Tech Com stock to increase,but also causes an increase in price volatility of the stock. Which of the following correctly identifies the impact of these changes on a put option of Tele-Tech Com?

Accepted Answer

A)  Both changes cause the price of the put option to decrease. 
B)  Both changes cause the price of the put option to increase. 
C)  The greater uncertainty will cause the price of the put option to decrease. The higher price of the stock will cause the price of the put option to increase. 
D)  The greater uncertainty will cause the price of the put option to increase. The higher price of the stock will cause the price of the put option to decrease. 
E)  The greater uncertainty has no direct effect on the price of the put option. The higher price of the stock will cause the price of the put option to decreasE. 
A)  Both changes cause the price of the put option to decrease. 
B)  Both changes cause the price of the put option to increase. 
C)  The greater uncertainty will cause the price of the put option to decrease. The higher price of the stock will cause the price of the put option to increase. 
D)  The greater uncertainty will cause the price of the put option to increase. The higher price of the stock will cause the price of the put option to decrease. 
E)  The greater uncertainty has no direct effect on the price of the put option. The higher price of the stock will cause the price of the put option to decreasE.

Question 14

An option that grants the right,but not the obligation,to sell shares of the underlying asset on a particular date at a specified price is called:

Accepted Answer

A)  either an American or a European option. 
B)  an American call. 
C)  an American put. 
D)  a European put. 
E)  a European call. 
A)  either an American or a European option. 
B)  an American call. 
C)  an American put. 
D)  a European put. 
E)  a European call.

Question 15

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

Accepted Answer

A)  -$250 
B)  -$50 
C)  $0 
D)  $50 
E)  $250 
A)  -$250 
B)  -$50 
C)  $0 
D)  $50 
E)  $250

Question 16

You sold a put contract on EDF stock at an option price of $.50. The option had an exercise price of $21. The option was exercised. Today,EDF stock is selling for $20 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.

Accepted Answer

A)  -$150 
B)  -$60 
C)  -$50 
D)  $60 
E)  $150 
A)  -$150 
B)  -$60 
C)  -$50 
D)  $60 
E)  $150

Question 17

What is the cost of five November 25 call option contracts on KNJ stock given the following price quotes?

Accepted Answer

A)  $615 
B)  $660 
C)  $2,500 
D)  $3,075 
E)  $3,300 
A)  $615 
B)  $660 
C)  $2,500 
D)  $3,075 
E)  $3,300

Question 18

An in-the-money put option is one that:

Accepted Answer

A)  has an exercise price greater than the underlying stock price. 
B)  has an exercise price less than the underlying stock price. 
C)  has an exercise price equal to the underlying stock price. 
D)  should not be exercised at expiration. 
E)  should not be exercised at any timE. 
A)  has an exercise price greater than the underlying stock price. 
B)  has an exercise price less than the underlying stock price. 
C)  has an exercise price equal to the underlying stock price. 
D)  should not be exercised at expiration. 
E)  should not be exercised at any timE.

Question 19

Three months ago,you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes,what is your total profit or loss on your investment?

Accepted Answer

A)  -$310 
B)  -$60 
C)  $0 
D)  $60 
E)  $190 
A)  -$310 
B)  -$60 
C)  $0 
D)  $60 
E)  $190

Question 20

You own one call option with an exercise price of $30 on Nadia Interiors stock. This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year. The risk-free rate of return is 5% and the inflation rate is 3%. What is the current value of your option if it expires in one year?

Accepted Answer

A)  $0.76 
B)  $0.79 
C)  $0.89 
D)  $0.92 
E)  $0.95 
A)  $0.76 
B)  $0.79 
C)  $0.89 
D)  $0.92 
E)  $0.95

Exam 22: Options and Corporate Finance

What is the value of one November 35 put contract?

The delta of a call measures:

Which one of the following provides the option of selling a stock anytime during the option period at a specified price even if the market price of the stock declines to zero?

A _____ is a derivative security that gives the owner the right,but not the obligation,to buy an asset at a fixed price for a specified period of time.

If you consider the equity of a firm to be an option on the firm's assets then the act of paying off debt is comparable to _____ on the assets of the firm.

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of ______

Given the following information,what is the value of d2 as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .25 Risk-free rate .055 Standard deviation .50 D1 .375161

The common stock of Mercury Motors is selling for $43.90 a share. U.S. Treasury bills are currently yielding 4.5%. What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?

The maximum value of a call option is equal to:

An option that grants the right,but not the obligation,to sell shares of the underlying asset on a particular date at a specified price is called:

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

What is the cost of five November 25 call option contracts on KNJ stock given the following price quotes?

An in-the-money put option is one that:

Three months ago,you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes,what is your total profit or loss on your investment?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _ option on the assets of the firm with a strike price of __

Given the following information,what is the value of d₂ as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .25 Risk-free rate .055 Standard deviation .50 D₁ .375161