Question 1

The price at which the holder of an option buys or sells a share of stock when the option is exercised is called the ________ price.

Accepted Answer

A)  strike 
B)  American 
C)  dilutive 
D)  none of the above 
A)  strike 
B)  American 
C)  dilutive 
D)  none of the above

Question 2

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:  
-How many of the January 2009 put options are in-the-money?

Accepted Answer

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

Question 3

Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of a put option if the option strike price is $60.

Accepted Answer

A)  $20 
B)  $30 
C)  $40 
D)  $50 
A)  $20 
B)  $30 
C)  $40 
D)  $50

Question 4

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Rackspace.
  
-How many of the December 2010 put options are in-the-money?

Accepted Answer

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

Question 5

Use the table for the question(s) below.
Consider the following information on options from the CBOE for Merck:  
-Assume you want to buy one options contract that with an exercise price closest to being at-the-money and that expires January 2009. The current price that you would have to pay for such a contract is ________.

Accepted Answer

A)  $680 
B)  $380 
C)  $650 
D)  $420 
A)  $680 
B)  $380 
C)  $650 
D)  $420

Question 6

Consider the following equation: C = P + S - PV(K) - PV(Div)
In this equation, what does the term S represent?

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 7

Use the figure for the question below.  
-You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $60 in three months, what will you owe for each share in the contract?

Accepted Answer

A)  $0 
B)  $60 
C)  $50 
D)  $10 
A)  $0 
B)  $60 
C)  $50 
D)  $10

Question 8

Equity holders have an incentive to ________ the volatility of a firm's assets because they benefit from such an increase at a cost to ________.

Accepted Answer

A)  decrease, debt holders 
B)  decrease, suppliers 
C)  increase, directors 
D)  increase, debt holders 
A)  decrease, debt holders 
B)  decrease, suppliers 
C)  increase, directors 
D)  increase, debt holders

Question 9

When the exercise price of an option is equal to the current price of the stock, the option is said to be ________.

Accepted Answer

A)  at-the-money 
B)  in-the-money 
C)  out-of-the-money 
D)  none of the above 
A)  at-the-money 
B)  in-the-money 
C)  out-of-the-money 
D)  none of the above

Question 10

A(n) ________ in the volatility of assets of the firm benefits ________ at a cost to debt holders.

Accepted Answer

A)  decrease, equity holders 
B)  increase, equity holders 
C)  decrease, directors 
D)  increase, directors 
A)  decrease, equity holders 
B)  increase, equity holders 
C)  decrease, directors 
D)  increase, directors

Question 11

Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of a call option if the option strike price is $20.

Accepted Answer

A)  $20 
B)  $30 
C)  $40 
D)  $50 
A)  $20 
B)  $30 
C)  $40 
D)  $50

Question 12

________ is the relationship between the value of a stock, bond and the call and put options on the same stock and the same exercise price.

Accepted Answer

A)  Dividend exclusion 
B)  Limit law 
C)  Put-call parity 
D)  Put option equality 
A)  Dividend exclusion 
B)  Limit law 
C)  Put-call parity 
D)  Put option equality

Question 13

What is the short position of an options contract?

Accepted Answer

The option seller or writer is

Question 14

What is a put option?

Accepted Answer

A put option gives the owner t

Question 15

Suppose that a stock sells at a price of $10 on the expiration date. Compute the price of a call option if the option strike price is $20.

Accepted Answer

A)  $20 
B)  $30 
C)  $40 
D)  $0 
A)  $20 
B)  $30 
C)  $40 
D)  $0

Question 16

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 17

A put option gives the owner the right to ________ an asset at a fixed price at some future date.

Accepted Answer

A)  sell 
B)  buy 
C)  hold 
D)  none of the above 
A)  sell 
B)  buy 
C)  hold 
D)  none of the above

Question 18

A call option gives the owner the right to ________ an asset at a fixed price at some future date.

Accepted Answer

A)  sell 
B)  buy 
C)  hold 
D)  none of the above 
A)  sell 
B)  buy 
C)  hold 
D)  none of the above

Question 19

What are American options?

Accepted Answer

American options, the most com

Question 20

Use the figure for the question below.  
-You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $45 in three month, what will you owe for each share in the contract?

Accepted Answer

A)  $0 
B)  $50 
C)  $60 
D)  $10 
A)  $0 
B)  $50 
C)  $60 
D)  $10

Exam 21: Option Applications and Corporate Finance

The price at which the holder of an option buys or sells a share of stock when the option is exercised is called the ________ price.

Use the table for the question(s) below. Consider the following information on options from the CBOE for Merck: -How many of the January 2009 put options are in-the-money?

Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of a put option if the option strike price is $60.

Use the table for the question(s) below. Consider the following information on options from the CBOE for Rackspace. -How many of the December 2010 put options are in-the-money?

Consider the following equation: C = P + S - PV(K) - PV(Div) In this equation, what does the term S represent?

Use the figure for the question below. -You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $60 in three months, what will you owe for each share in the contract?

Equity holders have an incentive to ________ the volatility of a firm's assets because they benefit from such an increase at a cost to ________.

When the exercise price of an option is equal to the current price of the stock, the option is said to be ________.

A(n) ________ in the volatility of assets of the firm benefits ________ at a cost to debt holders.

Suppose that a stock sells at a price of $40 on the expiration date. Compute the price of a call option if the option strike price is $20.

________ is the relationship between the value of a stock, bond and the call and put options on the same stock and the same exercise price.

What is the short position of an options contract?

What is a put option?

Suppose that a stock sells at a price of $10 on the expiration date. Compute the price of a call option if the option strike price is $20.

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

A put option gives the owner the right to ________ an asset at a fixed price at some future date.

A call option gives the owner the right to ________ an asset at a fixed price at some future date.

What are American options?

Use the figure for the question below. -You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $45 in three month, what will you owe for each share in the contract?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Equity holders have an incentive to the volatility of a firm's assets because they benefit from such an increase at a cost to .

A(n) in the volatility of assets of the firm benefits at a cost to debt holders.