Question 1

Which of the following is correct for the owner of a September put,valued at $20,on CBA Corp.with a strike price of $80? CBA currently trades at $67.

Accepted Answer

A)  The option will continue to gain value until its September expiration. 
B)  The owner profits $13 per share by exercising now. 
C)  Further decreases in CBA stock price will be translated directly into additional option value. 
D)  $20 is the maximum value for this option. 
A)  The option will continue to gain value until its September expiration. 
B)  The owner profits $13 per share by exercising now. 
C)  Further decreases in CBA stock price will be translated directly into additional option value. 
D)  $20 is the maximum value for this option.

Question 2

How does the price of a put option respond to the following changes,other things being equal? Does the put price go up or down?
a.Stock price increases.
b.Exercise price increases.
c.Risk-free interest rate increases.
d.Expiration date of the option is extended.
e.Volatility of the stock price falls.
f.Time passes,so the option's expiration date comes closer.

Accepted Answer

a.Decreases
b.Increases
c.Decr

Question 3

The longer the time until expiration of a call option,the greater the value of the option.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Callable bonds give the option to the issuing firm and hence reduce the value of the bond.

Accepted Answer

A) True 
 B)False

Question 6

Investors who hold warrants essentially have a:

Accepted Answer

A)  put option on the firm's bonds. 
B)  put option on the firm's equity. 
C)  call option on the firm's bonds. 
D)  call option on the firm's equity. 
A)  put option on the firm's bonds. 
B)  put option on the firm's equity. 
C)  call option on the firm's bonds. 
D)  call option on the firm's equity.

Question 7

Which of the following option traders receive,rather than pay,a premium?

Accepted Answer

A)  Option sellers 
B)  Option buyers 
C)  Both option sellers and buyers 
D)  Neither buyers nor sellers receive premiums 
A)  Option sellers 
B)  Option buyers 
C)  Both option sellers and buyers 
D)  Neither buyers nor sellers receive premiums

Question 8

Which of the following statements is correct?

Accepted Answer

A)  A convertible bond will be priced less than a similar callable bond. 
B)  A convertible bond will be priced more than a similar callable bond. 
C)  Similar callable and convertible bonds will have the same price. 
D)  Warrants are always priced more than convertible bonds. 
A)  A convertible bond will be priced less than a similar callable bond. 
B)  A convertible bond will be priced more than a similar callable bond. 
C)  Similar callable and convertible bonds will have the same price. 
D)  Warrants are always priced more than convertible bonds.

Question 9

What is the option buyer's total profit or loss per share if a call option is purchased for a $5 premium,has a $50 exercise price,and the stock is valued at $53 at expiration?

Accepted Answer

A)  -$5 
B)  -$2 
C)  $3 
D)  $8 
A)  -$5 
B)  -$2 
C)  $3 
D)  $8

Question 10

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

Question 11

The value of a call option increases as the strike price increases.

Accepted Answer

A) True 
 B)False

Question 12

Define and briefly explain the relationship between the value of a call option and the following five factors: stock price,exercise price,interest rate,time to expiration,volatility of stock price.

Accepted Answer

a.Stock price-direct relationship; the h

Question 13

Generalize the formulas for determining the value of the following four option types: buying a call,buying a put,writing a call,writing a put.

Accepted Answer

Buying a call: Max [(stock price - exerc

Question 14

Warrants are long-term call options on a company's stock issued by an organized stock exchange.

Accepted Answer

A) True 
 B)False

Question 15

The value of both call and put options increases as the variability of the stock price increases.

Accepted Answer

A) True 
 B)False

Which of the following is correct for the owner of a September put,valued at $20,on CBA Corp.with a strike price of $80? CBA currently trades at $67.

The longer the time until expiration of a call option,the greater the value of the option.

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

Callable bonds give the option to the issuing firm and hence reduce the value of the bond.

Investors who hold warrants essentially have a:

Which of the following option traders receive,rather than pay,a premium?

Which of the following statements is correct?

What is the option buyer's total profit or loss per share if a call option is purchased for a $5 premium,has a $50 exercise price,and the stock is valued at $53 at 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 _.

The value of a call option increases as the strike price increases.

Define and briefly explain the relationship between the value of a call option and the following five factors: stock price,exercise price,interest rate,time to expiration,volatility of stock price.

Generalize the formulas for determining the value of the following four option types: buying a call,buying a put,writing a call,writing a put.

Warrants are long-term call options on a company's stock issued by an organized stock exchange.

The value of both call and put options increases as the variability of the stock price increases.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Risk Management

Filters

Exam 23: Options

Which of the following is correct for the owner of a September put,valued at $20,on CBA Corp.with a strike price of $80? CBA currently trades at $67.

The longer the time until expiration of a call option,the greater the value of the option.

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

Callable bonds give the option to the issuing firm and hence reduce the value of the bond.

Investors who hold warrants essentially have a:

Which of the following option traders receive,rather than pay,a premium?

Which of the following statements is correct?

What is the option buyer's total profit or loss per share if a call option is purchased for a $5 premium,has a $50 exercise price,and the stock is valued at $53 at 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 _____.

The value of a call option increases as the strike price increases.

Define and briefly explain the relationship between the value of a call option and the following five factors: stock price,exercise price,interest rate,time to expiration,volatility of stock price.

Generalize the formulas for determining the value of the following four option types: buying a call,buying a put,writing a call,writing a put.

Warrants are long-term call options on a company's stock issued by an organized stock exchange.

The value of both call and put options increases as the variability of the stock price increases.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Risk Management

Filters

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 _.