Question 1

If you are the owner of a European call option,you:

Accepted Answer

A) are obligated to buy the specified assets prior to the option's expiration. 
B) have the right to sell the specified assets at the set price at any time up to and including on the expiration date. 
C) have the right to buy the specified assets at the set price only on the expiration date. 
D) are obligated to sell the specified assets at the set price if the option is exercised. 
E) have the right to buy the specified assets at the set price at any time prior to the option's expiration. 
A) are obligated to buy the specified assets prior to the option's expiration. 
B) have the right to sell the specified assets at the set price at any time up to and including on the expiration date. 
C) have the right to buy the specified assets at the set price only on the expiration date. 
D) are obligated to sell the specified assets at the set price if the option is exercised. 
E) have the right to buy the specified assets at the set price at any time prior to the option's expiration.

Question 2

Which one of the following provides the right to sell a stock anytime during the option period at the strike price even if the market price of the stock declines to zero?

Accepted Answer

A) American call 
B) European call 
C) American put 
D) European put 
E) Should the underlying stock price decline to zero,all options are null and void. 
A) American call 
B) European call 
C) American put 
D) European put 
E) Should the underlying stock price decline to zero,all options are null and void.

Question 3

Due to technological and market developments,the price of Beta stock has become quite volatile.Given this,you decide to buy two one-month put option contracts and two one-month call option contracts on this stock with an exercise price of $15.You purchased the calls at a quoted price of $.40 and the puts at a price of $2.30.What will be your total profit on these positions if the stock price is $29 on the day the options expire?

Accepted Answer

A) $1,890 
B) $2,720 
C) $2,260 
D) $1,130 
E) $1,360 
A) $1,890 
B) $2,720 
C) $2,260 
D) $1,130 
E) $1,360

Question 4

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

Accepted Answer

A) $295 
B) $210 
C) $0 
D) $25 
E) $110 
A) $295 
B) $210 
C) $0 
D) $25 
E) $110

Question 5

A financial contract that provides its owner with the right,but not the obligation,to buy or sell a specified asset at an agreed-upon price on or before a given future date is called a(n)________ contract.

Accepted Answer

A) option 
B) futures 
C) forward 
D) swap 
E) straddle 
A) option 
B) futures 
C) forward 
D) swap 
E) straddle

If you are the owner of a European call option,you:

Which one of the following provides the right to sell a stock anytime during the option period at the strike price even if the market price of the stock declines to zero?

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

A financial contract that provides its owner with the right,but not the obligation,to buy or sell a specified asset at an agreed-upon price on or before a given future date is called a(n)________ contract.

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters

Exam 22: Options and Corporate Finance

If you are the owner of a European call option,you:

Which one of the following provides the right to sell a stock anytime during the option period at the strike price even if the market price of the stock declines to zero?

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

A financial contract that provides its owner with the right,but not the obligation,to buy or sell a specified asset at an agreed-upon price on or before a given future date is called a(n)________ contract.

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters