Exam 22: Options and Corporate Finance

The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks.Thus,you decide to purchase a one-month call option contract on this stock with a strike price of $25 and an option price of $1.50.You also purchase a one-month put option on this stock with a strike price of $25 and an option price of $.70.What will be your total profit on these option positions if the stock price is $24.60 on the day the options expire?

You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10.Today,the option expires when the underlying stock is selling for $34.30 a share.Ignoring trading costs and taxes,what is your total profit on this investment?

You own ten put option contracts on XYZ stock with an exercise price of $25.What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

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

An in-the-money put option is one that:

If a call option has a positive intrinsic value at expiration the call is said to be:

A trading opportunity that offers a riskless profit is called a(n):

Which combination is referred to as a protective put? Assume all sales and purchases refer to ABC stock and its option contract.

You sold a put contract on EDF stock at an option price of $.50 and an exercise price of $21.Today,EDF stock is selling for $20 a share and your option position was closed out.Ignoring transaction costs and taxes,what is your total profit?

Shareholders in a levered firm might wish to accept a negative net present value project if it:

The common stock of Mercury Motors is selling for $28.97 a share while one-year U.S.Treasury securities are currently yielding 2.8 percent.What is the current value per share of a one-year call option on Mercury Motors stock if the exercise price is $22.50 and you assume the option will finish in the money?

You currently own a one-year call option on WOI stock with a strike price of $20.The current stock price is $22.10 and the risk-free rate of return is 3.75 percent.If you assume the option finishes in the money,what is the current value of your call option per share?

Last week,you purchased one call option contract on DI stock with a strike price of $32.50 and an option price of $1.05.What is the intrinsic value per share of stock if DI is currently priced at $34.10?

Three months ago,you purchased a put option contract on WXX stock with a strike price of $61 and an option price of $.60.The option expires today when the value of WXX stock is $63.50.Ignoring trading costs and taxes,what is your total profit on your investment?

The Black-Scholes option pricing model is dependent on which five parameters?

Assume a risky firm has both bondholders and stockholders.If the firm obtains a government loan guarantee on its existing debt,who will gain from this guarantee?

You wrote ten put option contracts on JIG stock with a strike price of $40 and an option price of $.40.What is your total profit on this investment if the price of JIG is $41.05 on the option expiration date?

The intrinsic value of a put is equal to the:

Explain the rationale behind the statement that equity is a call option on the firm's assets.When would a shareholder allow the call to expire?

J&L stock has a current market price of $47.60 a share.The one-year call on this stock with a strike price of $45 is priced at $3.20 while the one-year put with a strike price of $45 is priced at $.15.What is the risk-free rate of return?