Question 1

Stock option quotes are

Accepted Answer

A) quoted as the price for each 100-share contract. 
B) quoted on a per-share basis with each contract covering 1,000 shares. 
C) quoted on a per-share basis with each contract covering a single share. 
D) based on a 1,000-share contract and quoted as a price per contract. 
E) based on a 100-share contract with the quote stated on a per-share basis. 
A) quoted as the price for each 100-share contract. 
B) quoted on a per-share basis with each contract covering 1,000 shares. 
C) quoted on a per-share basis with each contract covering a single share. 
D) based on a 1,000-share contract and quoted as a price per contract. 
E) based on a 100-share contract with the quote stated on a per-share basis.

Question 2

Ed's Sheds has a $1,250 pure discount bond that comes due in 1 year.The risk-free rate of return is 3.1 percent.The firm's assets are expected to be worth either $1,100 or $1,500 in 1 year.Currently,these assets are worth $1,360.What is the current value of the firm's debt?

Accepted Answer

A) $1,287.48 
B) $1,293.85 
C) $1,212.52 
D) $1,153.85 
E) $1,176.83 
A) $1,287.48 
B) $1,293.85 
C) $1,212.52 
D) $1,153.85 
E) $1,176.83

Question 3

You own stock in a firm that has a pure discount loan due in 6 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) call; $50,000. 
C) warrant; $62,000. 
D) call; $62,000. 
E) put; $50,000. 
A) put; $62,000. 
B) call; $50,000. 
C) warrant; $62,000. 
D) call; $62,000. 
E) put; $50,000.

Question 4

A 1-month $15 call option on BRU stock is priced at $1.45 while the 1-month $20 put option is priced at $3.45.Which one of these is the best estimate of the current price of one share of BRU stock?

Accepted Answer

A) $14.50 
B) $16.50 
C) $15.00 
D) $16.00 
E) $15.50 
A) $14.50 
B) $16.50 
C) $15.00 
D) $16.00 
E) $15.50

Question 5

Rita owns six put option contracts on Farmington stock with an exercise price of $27.50.What is the total intrinsic value of these contracts if the stock is currently selling for $26.98 a share?

Accepted Answer

A) −$624 
B) −$312 
C) $0 
D) $312 
E) $624 
A) −$624 
B) −$312 
C) $0 
D) $312 
E) $624

Question 6

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 7

The minimum payoff to the seller of a put is

Accepted Answer

A) zero. 
B) a loss equal to the stock price. 
C) a loss equal to the exercise price. 
D) equal to the exercise price minus the stock price. 
E) unlimited. 
A) zero. 
B) a loss equal to the stock price. 
C) a loss equal to the exercise price. 
D) equal to the exercise price minus the stock price. 
E) unlimited.

Question 8

An option that can only be exercised on the expiration date is referred to as

Accepted Answer

A) an expired option. 
B) an American option. 
C) a struck option. 
D) a European option. 
E) an expiring option. 
A) an expired option. 
B) an American option. 
C) a struck option. 
D) a European option. 
E) an expiring option.

Question 9

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 10

Valley Foods has a stock price of $34.92 a share.The 3-month options have a strike price of $35.The risk-free rate is 4.2 percent,the standard deviation is 38 percent,N(d1)is 0.55497 and N(d2)is 0.47935.What is the call price?

Accepted Answer

A) $2.03 
B) $2.78 
C) $2.69 
D) $2.11 
E) $2.47 
A) $2.03 
B) $2.78 
C) $2.69 
D) $2.11 
E) $2.47

Question 11

The relationship between a change in the price of a stock and the related change in the price of the call on that stock is referred to as the option

Accepted Answer

A) vega. 
B) theta. 
C) rho. 
D) gamma. 
E) delta. 
A) vega. 
B) theta. 
C) rho. 
D) gamma. 
E) delta.

Question 12

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 13

A 4-month ABC $30 call is priced at $1.50 while the 4-month ABC put is priced at $2.20.Risk-free assets are currently returning 0.25 percent per month.What is the price of ABC stock?

Accepted Answer

A) $29 
B) $27 
C) $31 
D) $34 
E) $30 
A) $29 
B) $27 
C) $31 
D) $34 
E) $30

Question 14

The market price of Wild Ride stock has been very volatile,and you think this volatility will continue for a few weeks.Thus,you decide to purchase a 1-month call option contract with a strike price of $45 and an option price of $1.15.You also purchase a 1-month put option on the stock with a strike price of $50 and an option price of $.95.What will be your total profit or loss on all the transactions related to these option positions if the stock price is $44.40 on the day the options expire?

Accepted Answer

A) $315 
B) $290 
C) −$210 
D) $350 
E) −$105 
A) $315 
B) $290 
C) −$210 
D) $350 
E) −$105

Question 15

If you express a firm in terms of put options,the

Accepted Answer

A) current value of the firm is the exercise price. 
B) option will always be in the money. 
C) stockholders will be considered as the firm's owners. 
D) bondholders determine whether or not the option will be exercised. 
E) bondholders are the buyers of the put. 
A) current value of the firm is the exercise price. 
B) option will always be in the money. 
C) stockholders will be considered as the firm's owners. 
D) bondholders determine whether or not the option will be exercised. 
E) bondholders are the buyers of the put.

Question 16

Assume N(d2)= N(3.0155)= 0.9987.Given this assumption,a drawing from the standardized normal distribution has a ________ percent probability of being less than ________.

Accepted Answer

A) 3.0155; 0.9987 
B) 0.13; 3.0155 
C) 99.87; 3.0155 
D) 0.0013; .9987 
E) 0.9987; 3.0155 
A) 3.0155; 0.9987 
B) 0.13; 3.0155 
C) 99.87; 3.0155 
D) 0.0013; .9987 
E) 0.9987; 3.0155

Question 17

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 18

The $17.50 put option on ALF stock is priced at $.75.What is the total intrinsic value of one option contract if the underlying stock is currently selling for $18 a share?

Accepted Answer

A) −$50 
B) −$25 
C) $0 
D) $25 
E) $50 
A) −$50 
B) −$25 
C) $0 
D) $25 
E) $50

Question 19

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 20

Which one of these will increase both the value of a call and the value of a put?

Accepted Answer

A) Decrease in the exercise price 
B) Increase in the stock price 
C) Decrease in the interest rate 
D) Increase in stock volatility 
E) Decrease in time to expiration 
A) Decrease in the exercise price 
B) Increase in the stock price 
C) Decrease in the interest rate 
D) Increase in stock volatility 
E) Decrease in time to expiration

Stock option quotes are

Ed's Sheds has a $1,250 pure discount bond that comes due in 1 year.The risk-free rate of return is 3.1 percent.The firm's assets are expected to be worth either $1,100 or $1,500 in 1 year.Currently,these assets are worth $1,360.What is the current value of the firm's debt?

You own stock in a firm that has a pure discount loan due in 6 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 .

A 1-month $15 call option on BRU stock is priced at $1.45 while the 1-month $20 put option is priced at $3.45.Which one of these is the best estimate of the current price of one share of BRU stock?

Rita owns six put option contracts on Farmington stock with an exercise price of $27.50.What is the total intrinsic value of these contracts if the stock is currently selling for $26.98 a share?

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

The minimum payoff to the seller of a put is

An option that can only be exercised on the expiration date is referred to as

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

Valley Foods has a stock price of $34.92 a share.The 3-month options have a strike price of $35.The risk-free rate is 4.2 percent,the standard deviation is 38 percent,N(d₁)is 0.55497 and N(d₂)is 0.47935.What is the call price?

The relationship between a change in the price of a stock and the related change in the price of the call on that stock is referred to as the option

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

A 4-month ABC $30 call is priced at $1.50 while the 4-month ABC put is priced at $2.20.Risk-free assets are currently returning 0.25 percent per month.What is the price of ABC stock?

If you express a firm in terms of put options,the

Assume N(d₂)= N(3.0155)= 0.9987.Given this assumption,a drawing from the standardized normal distribution has a percent probability of being less than .

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

The $17.50 put option on ALF stock is priced at $.75.What is the total intrinsic value of one option contract if the underlying stock is currently selling for $18 a share?

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

Which one of these will increase both the value of a call and the value of a put?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

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Exam 17: Options and Corporate Finance

Stock option quotes are

Ed's Sheds has a $1,250 pure discount bond that comes due in 1 year.The risk-free rate of return is 3.1 percent.The firm's assets are expected to be worth either $1,100 or $1,500 in 1 year.Currently,these assets are worth $1,360.What is the current value of the firm's debt?

You own stock in a firm that has a pure discount loan due in 6 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 ________.

A 1-month $15 call option on BRU stock is priced at $1.45 while the 1-month $20 put option is priced at $3.45.Which one of these is the best estimate of the current price of one share of BRU stock?

Rita owns six put option contracts on Farmington stock with an exercise price of $27.50.What is the total intrinsic value of these contracts if the stock is currently selling for $26.98 a share?

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

The minimum payoff to the seller of a put is

An option that can only be exercised on the expiration date is referred to as

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

Valley Foods has a stock price of $34.92 a share.The 3-month options have a strike price of $35.The risk-free rate is 4.2 percent,the standard deviation is 38 percent,N(d1)is 0.55497 and N(d2)is 0.47935.What is the call price?

The relationship between a change in the price of a stock and the related change in the price of the call on that stock is referred to as the option

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

A 4-month ABC $30 call is priced at $1.50 while the 4-month ABC put is priced at $2.20.Risk-free assets are currently returning 0.25 percent per month.What is the price of ABC stock?

If you express a firm in terms of put options,the

Assume N(d2)= N(3.0155)= 0.9987.Given this assumption,a drawing from the standardized normal distribution has a ________ percent probability of being less than ________.

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

The $17.50 put option on ALF stock is priced at $.75.What is the total intrinsic value of one option contract if the underlying stock is currently selling for $18 a share?

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

Which one of these will increase both the value of a call and the value of a put?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

You own stock in a firm that has a pure discount loan due in 6 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 .

Valley Foods has a stock price of $34.92 a share.The 3-month options have a strike price of $35.The risk-free rate is 4.2 percent,the standard deviation is 38 percent,N(d₁)is 0.55497 and N(d₂)is 0.47935.What is the call price?

Assume N(d₂)= N(3.0155)= 0.9987.Given this assumption,a drawing from the standardized normal distribution has a percent probability of being less than .