Exam 22: Options and Corporate Finance

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J&L,Inc. stock has a current market price of $55 a share. The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1. What is the risk-free rate of return?

(Multiple Choice)

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Question 61

You purchased four WXO 30 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date?

(Multiple Choice)

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Question 62

The difference between an American call and a European call is that the American call:

(Multiple Choice)

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Question 63

Which of the following is not true concerning call option writers?

(Multiple Choice)

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Question 64

You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?

(Multiple Choice)

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Question 65

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 call option of Tele-Tech Com?

(Multiple Choice)

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Question 66

The act where an owner of an option buys or sells the underlying asset,as is his right,is called ______ the option.

(Multiple Choice)

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Question 67

Assume that the delta of a call option on a firm's assets is .792. This means that a $50,000 project will increase the value of equity by:

(Multiple Choice)

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Question 68

Which of the following statements is true?

(Multiple Choice)

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Question 69

The effect on an option's value of a small change in the value of the underlying asset is called the option:

(Multiple Choice)

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Question 70

The common stock of Winsson,Inc. is currently priced at $52.50 a share. One year from now,the stock price is expected to be either $54 or $60 a share. The risk-free rate of return is 4%. What is the value of one call option on Winsson stock with an exercise price of $55?

(Multiple Choice)

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(62)

Question 71

Which one of the following will cause the value of a call to decrease?

(Multiple Choice)

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Question 72

An option that may be exercised only on the expiration date is called a(n) _____ option.

(Multiple Choice)

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Question 73

You own both a May 20 call and a May 20 put. If the call finishes in the money,then the put will:

(Multiple Choice)

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Question 74

Which of the following statements are correct concerning option values? I. The value of a 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 a put increases as the price of the underlying stock increases. IV. The value of a put decreases as the exercise price increases.

(Multiple Choice)

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Question 75

Assume that you own both a May 40 put and a May 40 call on ABC stock. Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

(Multiple Choice)

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(84)

Question 76

The lower bound on a call's value is either the:

(Multiple Choice)

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Question 77

Big Ed's Electrical has a pure discount bond that comes due in one year and has a face value of $1,000. The risk-free rate of return is 4%. The assets of Big Ed's are expected to be worth either $800 or $1,300 in one year. Currently,these assets are worth $1,140. What is the current value of the debt of Big Ed's Electrical?

(Multiple Choice)

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(83)

Question 78

The last day on which an owner of an option can elect to exercise is the _____ date.

(Multiple Choice)

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Question 79

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

(Multiple Choice)

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Question 80

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Exam 22: Options and Corporate Finance

J&L,Inc. stock has a current market price of $55 a share. The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1. What is the risk-free rate of return?

You purchased four WXO 30 call option contracts at a quoted price of $.34. What is your net gain or loss on this investment if the price of WXO is $33.60 on the option expiration date?

The difference between an American call and a European call is that the American call:

Which of the following is not true concerning call option writers?

You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?

The act where an owner of an option buys or sells the underlying asset,as is his right,is called ______ the option.

Assume that the delta of a call option on a firm's assets is .792. This means that a $50,000 project will increase the value of equity by:

Which of the following statements is true?

The effect on an option's value of a small change in the value of the underlying asset is called the option:

The common stock of Winsson,Inc. is currently priced at $52.50 a share. One year from now,the stock price is expected to be either $54 or $60 a share. The risk-free rate of return is 4%. What is the value of one call option on Winsson stock with an exercise price of $55?

Which one of the following will cause the value of a call to decrease?

An option that may be exercised only on the expiration date is called a(n) _____ option.

You own both a May 20 call and a May 20 put. If the call finishes in the money,then the put will:

Assume that you own both a May 40 put and a May 40 call on ABC stock. Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

The lower bound on a call's value is either the:

The last day on which an owner of an option can elect to exercise is the _____ date.

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

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

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