Question 1

British Imports has a stock price of $38.62 a share.The $35 put is priced at $.15.The intrinsic value of the put is ________,and the time value is ________.

Accepted Answer

A) $0; $1.65 
B) $3.62; $.15 
C) $0; $.15 
D) $0; $3.62 
E) $3.62; −$3.47 
A) $0; $1.65 
B) $3.62; $.15 
C) $0; $.15 
D) $0; $3.62 
E) $3.62; −$3.47

Question 2

An increase in which one of these will decrease the value of a call option and increase the value of a put option?

Accepted Answer

A) Stock price 
B) Time to expiration 
C) Stock volatility 
D) Interest rate 
E) Exercise price 
A) Stock price 
B) Time to expiration 
C) Stock volatility 
D) Interest rate 
E) Exercise price

Question 3

Which one of these combinations is a protective put?

Accepted Answer

A) Writing identical puts and calls on the same asset 
B) Buying a put and buying the underlying asset 
C) Selling a call and buying the underlying asset 
D) Buying a call and selling the underlying asset 
E) Selling a put and buying the underlying asset 
A) Writing identical puts and calls on the same asset 
B) Buying a put and buying the underlying asset 
C) Selling a call and buying the underlying asset 
D) Buying a call and selling the underlying asset 
E) Selling a put and buying the underlying asset

Question 4

A stock has a market value of $36.10 a share.The $35 call option is priced at $1.48.The intrinsic value of this option is ________,and the time value is ________.

Accepted Answer

A) $1.10; $.38 
B) $1.10; $1.48 
C) $0; $1.48 
D) $0; $.38 
E) $0; $1.10 
A) $1.10; $.38 
B) $1.10; $1.48 
C) $0; $1.48 
D) $0; $.38 
E) $0; $1.10

Question 5

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 6

The 1-year $35 options on Water Kingdom stock are priced at $1.32 for the call and $.25 for the put.The annual risk-free rate is 1.8 percent.What is the per share price of the underlying stock?

Accepted Answer

A) $33.59 
B) $35.45 
C) $36.40 
D) $35.33 
E) $34.41 
A) $33.59 
B) $35.45 
C) $36.40 
D) $35.33 
E) $34.41

Question 7

You purchased four TJH call option contracts with a strike price of $35 when the option was quoted at $.68.The option expires today when the value of TJH stock is $36.90.Ignoring trading costs and taxes,what is your total profit or loss on your investment?

Accepted Answer

A) $510.00 
B) $488.00 
C) $429.70 
D) $620.00 
E) $489.50 
A) $510.00 
B) $488.00 
C) $429.70 
D) $620.00 
E) $489.50

Question 8

The fixed price in an option contract at which the owner can buy or sell the underlying asset is called the option's

Accepted Answer

A) opening price. 
B) intrinsic value. 
C) market price. 
D) strike price. 
E) time value. 
A) opening price. 
B) intrinsic value. 
C) market price. 
D) strike price. 
E) time value.

Question 9

Assuming all else equal,the value of an in-the-money call increases when the
I.time to expiration increases.
II.stock price increases.
III.risk-free rate of return increases.
IV.volatility of the price of the underlying stock increases.

Accepted Answer

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

Question 10

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 11

Wilt's has a stock price of $38 a share.The 9-month options have a strike price of $45.The risk-free rate is 3.2 percent,the standard deviation is 21 percent,N(d1)is 0.23985 and N(d2)is 0.18710.What is the call price?

Accepted Answer

A) $.68 
B) $.89 
C) $1.03 
D) $1.21 
E) $1.17 
A) $.68 
B) $.89 
C) $1.03 
D) $1.21 
E) $1.17

Question 12

You wrote five call option contracts on MNO stock with a strike price of $25 and an option price of $.70.What is your total net profit or loss on all transactions related to this investment if the price of MNO is $24.70 on the option expiration date? Ignore taxes and transaction costs.

Accepted Answer

A) −$500 
B) $350 
C) −$350 
D) $500 
E) $425 
A) −$500 
B) $350 
C) −$350 
D) $500 
E) $425

Question 13

A stock is currently priced at $53.80 a share.One year from now,the stock price is expected to be either $54 or $59 a share.The risk-free rate of return is 2 percent.What is the value of a 1-year call option with an exercise price of $55?

Accepted Answer

A) $.75 
B) $.81 
C) $.45 
D) $.69 
E) $.51 
A) $.75 
B) $.81 
C) $.45 
D) $.69 
E) $.51

Question 14

Jeanette just purchased 100 shares of HE stock along with a $30 put option contract on HE.During the life of the option contract,the minimum value of her combined holdings will be ________ and the maximum value will be ________.

Accepted Answer

A) $0; $1,500. 
B) $0; $3,000. 
C) $1,500; $3,000 
D) $0; Unlimited 
E) $3,000; Unlimited 
A) $0; $1,500. 
B) $0; $3,000. 
C) $1,500; $3,000 
D) $0; Unlimited 
E) $3,000; Unlimited

Question 15

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.

Question 16

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

Question 17

RTF stock is currently priced at $21.06 a share.The only options on this stock are the August $25 call option,which is priced at $.32,and the August $25 put which is priced at $3.98.Flo would like the option to purchase 500 shares of RTF should the price suddenly rise as she expects.Her main concern is that the price will double after hours and she will miss out on some potential profits.She also realizes the stock is highly risky,and she could lose her entire investment,which she prefers not to do.What should she do to help offset her concerns?

Accepted Answer

A) Sell 500 put option contracts and receive $1,990 
B) Sell five call option contracts and receive $1.60 
C) Buy 500 call option contracts at a cost of $160 
D) Buy five put option contracts at a cost of $19.90 
E) Buy five call option contracts at a cost of $160 
A) Sell 500 put option contracts and receive $1,990 
B) Sell five call option contracts and receive $1.60 
C) Buy 500 call option contracts at a cost of $160 
D) Buy five put option contracts at a cost of $19.90 
E) Buy five call option contracts at a cost of $160

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

The ticker symbol for a stock option indicates all of the following except the

Accepted Answer

A) underlying stock. 
B) expiration date. 
C) intrinsic value. 
D) type of option. 
E) strike price. 
A) underlying stock. 
B) expiration date. 
C) intrinsic value. 
D) type of option. 
E) strike price.

Question 20

High Tower stock is selling for $32.08 a share,the $30 puts are priced at $.62,and the $30 calls are priced at $2.36.How much will you receive if you write twenty $30 put option contracts?

Accepted Answer

A) $1,080 
B) $1,240 
C) $10.80 
D) $12.40 
E) $4,720 
A) $1,080 
B) $1,240 
C) $10.80 
D) $12.40 
E) $4,720

British Imports has a stock price of $38.62 a share.The $35 put is priced at $.15.The intrinsic value of the put is ,and the time value is .

An increase in which one of these will decrease the value of a call option and increase the value of a put option?

Which one of these combinations is a protective put?

A stock has a market value of $36.10 a share.The $35 call option is priced at $1.48.The intrinsic value of this option is ,and the time value is .

The seller of a European call option has the

The 1-year $35 options on Water Kingdom stock are priced at $1.32 for the call and $.25 for the put.The annual risk-free rate is 1.8 percent.What is the per share price of the underlying stock?

You purchased four TJH call option contracts with a strike price of $35 when the option was quoted at $.68.The option expires today when the value of TJH stock is $36.90.Ignoring trading costs and taxes,what is your total profit or loss on your investment?

The fixed price in an option contract at which the owner can buy or sell the underlying asset is called the option's

Assuming all else equal,the value of an in-the-money call increases when the I.time to expiration increases. II.stock price increases. III.risk-free rate of return increases. IV.volatility of the price of the underlying stock increases.

Selling a covered call is equivalent to

Wilt's has a stock price of $38 a share.The 9-month options have a strike price of $45.The risk-free rate is 3.2 percent,the standard deviation is 21 percent,N(d₁)is 0.23985 and N(d₂)is 0.18710.What is the call price?

You wrote five call option contracts on MNO stock with a strike price of $25 and an option price of $.70.What is your total net profit or loss on all transactions related to this investment if the price of MNO is $24.70 on the option expiration date? Ignore taxes and transaction costs.

A stock is currently priced at $53.80 a share.One year from now,the stock price is expected to be either $54 or $59 a share.The risk-free rate of return is 2 percent.What is the value of a 1-year call option with an exercise price of $55?

Jeanette just purchased 100 shares of HE stock along with a $30 put option contract on HE.During the life of the option contract,the minimum value of her combined holdings will be and the maximum value will be .

A government guarantee of a firm's existing debt

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.

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?

The ticker symbol for a stock option indicates all of the following except the

High Tower stock is selling for $32.08 a share,the $30 puts are priced at $.62,and the $30 calls are priced at $2.36.How much will you receive if you write twenty $30 put option contracts?

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

British Imports has a stock price of $38.62 a share.The $35 put is priced at $.15.The intrinsic value of the put is ________,and the time value is ________.

An increase in which one of these will decrease the value of a call option and increase the value of a put option?

Which one of these combinations is a protective put?

A stock has a market value of $36.10 a share.The $35 call option is priced at $1.48.The intrinsic value of this option is ________,and the time value is ________.

The seller of a European call option has the

The 1-year $35 options on Water Kingdom stock are priced at $1.32 for the call and $.25 for the put.The annual risk-free rate is 1.8 percent.What is the per share price of the underlying stock?

You purchased four TJH call option contracts with a strike price of $35 when the option was quoted at $.68.The option expires today when the value of TJH stock is $36.90.Ignoring trading costs and taxes,what is your total profit or loss on your investment?

The fixed price in an option contract at which the owner can buy or sell the underlying asset is called the option's

Assuming all else equal,the value of an in-the-money call increases when the I.time to expiration increases. II.stock price increases. III.risk-free rate of return increases. IV.volatility of the price of the underlying stock increases.

Selling a covered call is equivalent to

Wilt's has a stock price of $38 a share.The 9-month options have a strike price of $45.The risk-free rate is 3.2 percent,the standard deviation is 21 percent,N(d1)is 0.23985 and N(d2)is 0.18710.What is the call price?

You wrote five call option contracts on MNO stock with a strike price of $25 and an option price of $.70.What is your total net profit or loss on all transactions related to this investment if the price of MNO is $24.70 on the option expiration date? Ignore taxes and transaction costs.

A stock is currently priced at $53.80 a share.One year from now,the stock price is expected to be either $54 or $59 a share.The risk-free rate of return is 2 percent.What is the value of a 1-year call option with an exercise price of $55?

Jeanette just purchased 100 shares of HE stock along with a $30 put option contract on HE.During the life of the option contract,the minimum value of her combined holdings will be ________ and the maximum value will be ________.

A government guarantee of a firm's existing debt

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.

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?

The ticker symbol for a stock option indicates all of the following except the

High Tower stock is selling for $32.08 a share,the $30 puts are priced at $.62,and the $30 calls are priced at $2.36.How much will you receive if you write twenty $30 put option contracts?

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

British Imports has a stock price of $38.62 a share.The $35 put is priced at $.15.The intrinsic value of the put is ,and the time value is .

A stock has a market value of $36.10 a share.The $35 call option is priced at $1.48.The intrinsic value of this option is ,and the time value is .

Wilt's has a stock price of $38 a share.The 9-month options have a strike price of $45.The risk-free rate is 3.2 percent,the standard deviation is 21 percent,N(d₁)is 0.23985 and N(d₂)is 0.18710.What is the call price?

Jeanette just purchased 100 shares of HE stock along with a $30 put option contract on HE.During the life of the option contract,the minimum value of her combined holdings will be and the maximum value will be .