Question 1

In describing Galt's equity as a call option,the strike price of the call option is:

Accepted Answer

A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million 
A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million

Question 2

A credit default swap is essentially a:

Accepted Answer

A) put option on the firm's assets. 
B) call option on the firm's assets. 
C) put option on the firm's debt. 
D) call option on the firm's debt. 
A) put option on the firm's assets. 
B) call option on the firm's assets. 
C) put option on the firm's debt. 
D) call option on the firm's debt.

Question 3

Use the figure for the question(s)below.  
-This graph depicts the payoffs of:

Accepted Answer

A) a long position in a put option at expiration. 
B) a short position in a call option at expiration. 
C) a short position in a put option at expiration. 
D) a long position in a call option at expiration. 
A) a long position in a put option at expiration. 
B) a short position in a call option at expiration. 
C) a short position in a put option at expiration. 
D) a long position in a call option at expiration.

Question 4

Graph the payoff at expiration of a short position in a put option with a strike price of $20.

Accepted Answer

The answer of Graph the payoff at expiration of a...

Question 5

The holder of a put option has:

Accepted Answer

A) the obligation to sell a security for a given price. 
B) the right to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the obligation to buy a security for a given price. 
A) the obligation to sell a security for a given price. 
B) the right to buy a security for a given price. 
C) the right to sell a security for a given price. 
D) the obligation to buy a security for a given price.

Question 6

Consider the following equation:
C = S - K + dis(K)+ P - PV(Div)
In this equation,dis(K)+ P - PV(Div)tells us:

Accepted Answer

A) the market value of the option. 
B) the difference in the price of an American option over a European option because of dividend capture. 
C) the intrinsic value of the option. 
D) the time value of the option. 
A) the market value of the option. 
B) the difference in the price of an American option over a European option because of dividend capture. 
C) the intrinsic value of the option. 
D) the time value of the option.

Question 7

With a(n)________,the buyer pays a premium to the seller and receives a payment from the seller to make up for the loss if the underlying bond defaults.

Accepted Answer

A) equity option swap 
B) credit default swap 
C) risk-free swap 
D) interest rate swap 
A) equity option swap 
B) credit default swap 
C) risk-free swap 
D) interest rate swap

Question 8

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to:

Accepted Answer

A) -$1.00 
B) $1.00 
C) -$2.25 
D) $2.25 
A) -$1.00 
B) $1.00 
C) -$2.25 
D) $2.25

Question 9

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the minimum possible price for an American put option on Nielson Motors with a strike price of $70?

Accepted Answer

A) $0 
B) $20 
C) $50 
D) infinite 
A) $0 
B) $20 
C) $50 
D) infinite

Question 10

Using options to place a bet on the direction in which you believe the market is likely to move is called:

Accepted Answer

A) speculation. 
B) hedging. 
C) a covered position. 
D) a naked position. 
A) speculation. 
B) hedging. 
C) a covered position. 
D) a naked position.

Question 11

Consider the following equation:
C = P + S - PV(K)- PV(Div)
In this equation the term S refers to:

Accepted Answer

A) the payoff of a zero coupon bond. 
B) the strike price of the option. 
C) the value of the call option. 
D) the stock's current price. 
A) the payoff of a zero coupon bond. 
B) the strike price of the option. 
C) the value of the call option. 
D) the stock's current price.

Question 12

The payoff to the holder of a put option is given by:

Accepted Answer

A) P = max(K - S,0) 
B) P= max(S - K,0) 
C) P = min(S - K,0) 
D) P = max(K,0) 
A) P = max(K - S,0) 
B) P= max(S - K,0) 
C) P = min(S - K,0) 
D) P = max(K,0)

Question 13

The market price of an option is called the:

Accepted Answer

A) American premium. 
B) European premium. 
C) option premium. 
D) exercising premium. 
A) American premium. 
B) European premium. 
C) option premium. 
D) exercising premium.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) Because a short position in an option is the other side of a long position,the profits from a short position in an option are just the negative of the profits of a long position. 
B) The deeper out-of-the-money the put option is,the less negative its beta,and the higher is its expected return. 
C) Although payouts on a long position in an option contract are never negative,the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option. 
D) The put position has a higher return in states with low stock prices;that is,if the stock has a positive beta,the put has a negative beta. 
A) Because a short position in an option is the other side of a long position,the profits from a short position in an option are just the negative of the profits of a long position. 
B) The deeper out-of-the-money the put option is,the less negative its beta,and the higher is its expected return. 
C) Although payouts on a long position in an option contract are never negative,the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option. 
D) The put position has a higher return in states with low stock prices;that is,if the stock has a positive beta,the put has a negative beta.

Question 15

How many of the January 2009 put options are in the money?

Accepted Answer

A) 1 
B) 3 
C) 2 
D) 4 
A) 1 
B) 3 
C) 2 
D) 4

Question 16

Consider the following equation:
C = P + S - PV(K)- PV(Div)
In this equation the term C refers to:

Accepted Answer

A) the value of the call option. 
B) the stock's current price. 
C) the payoff of a zero coupon bond. 
D) the strike price of the option. 
A) the value of the call option. 
B) the stock's current price. 
C) the payoff of a zero coupon bond. 
D) the strike price of the option.

Question 17

In describing Galt's equity as a call option,the market value of the assets underlying the call option is:

Accepted Answer

A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million 
A) $200 million 
B) $300 million 
C) $500 million 
D) $700 million

Exam 20: Financial Options

In describing Galt's equity as a call option,the strike price of the call option is:

A credit default swap is essentially a:

Use the figure for the question(s)below. -This graph depicts the payoffs of:

Graph the payoff at expiration of a short position in a put option with a strike price of $20.

The holder of a put option has:

Consider the following equation: C = S - K + dis(K)+ P - PV(Div) In this equation,dis(K)+ P - PV(Div)tells us:

With a(n)________,the buyer pays a premium to the seller and receives a payment from the seller to make up for the loss if the underlying bond defaults.

You pay $3.25 for a call option on Luther Industries that expires in three months with a strike price of $40.00.Three months later,at expiration,Luther Industries is trading at $41.00 per share.Your profit per share on this transaction is closest to:

Suppose that Nielson Motors stock is trading for $50 per share and that Nielson pays no dividends.What is the minimum possible price for an American put option on Nielson Motors with a strike price of $70?

Using options to place a bet on the direction in which you believe the market is likely to move is called:

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation the term S refers to:

The payoff to the holder of a put option is given by:

The market price of an option is called the:

Which of the following statements is FALSE?

How many of the January 2009 put options are in the money?

Consider the following equation: C = P + S - PV(K)- PV(Div) In this equation the term C refers to:

In describing Galt's equity as a call option,the market value of the assets underlying the call option is:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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