Chat with AIExam 20: Corporate Risk Management
Annika has purchased put options on 1000 shares of Amazon stock with a striking price of $270 per share.The option premium was $6.00 per share.
a.Compute Annika's profit or loss if the market value of Amazon's stock is $280 at expiration.
b.Compute Annika's profit or loss if the market value of Amazon's stock is $260 at expiration.
c.Compute Annika's profit or loss if the market value of Amazon's stock is $272 at expiration.
(84) 
Verifieda.The option will not be exercised because it would be better to sell the stock in the market.Annika loses the option premium of $6,000 although the stock is worth $10 more than the put's striking price,so she may have profits on the stock if she owns it.
b.Annika will buy the stock for $260 if she does not already own it,and sell it to seller of the put for $270 at a profit of $10,000.Subtracting the option premium of $6,000 her net profit is $4,000.
c.The option will not be exercised because it would be better to sell the stock at the market price.Annika loses the option premium of $6,000 although she may have a profit on the stock if she owns it.
What are the differences between forward contracts and futures contracts? What are some advantages and disadvantages of each.
(76) VerifiedForward contracts can be arranged between private parties for any maturity,quantity,commodity or financial instrument.Futures contracts have standardized quantities,quality,and expiration dates.Forward contracts are very flexible and can be tailored to the specific needs of the client.Because they are not standardized,it is difficult to know their actual value,so they may be more expensive to use than futures.Futures are openly traded on exchanges so their prices are set in efficient,transparent markets.The procedures to protect both sides of the contract against defaults are well established and monitored by the exchanges.The standardized features of future contracts also protect buyers from deception or misunderstandings.
A ________ is a contract that requires the holder to buy or sell a stated commodity at a specified price at a specified time in the future.
(86) VerifiedC
Assume that the current price of FGX stock is $35,that a 6 month call option on the stock has a strike or exercise price of $33.00,the risk free rate is 4%,and that you have calculated N(d1)as .65 and N(d2)as .55.Use the Black-Scholes model to calculate the price of the option.
(76) Assume that the current price of DEY stock is $25,that a 1 year call option on the stock has a strike or exercise price of $27.50,the risk free rate is 4%,and that you have calculated N(d1)as .5476 and N(d2)as .4432.Use the Black-Scholes model to calculate the price of the option.
(85) Directors and officers insurance protects the company if key personnel die or leave the firm for other opportunities.
(86) Which of the following are part of the five step corporate risk management process?
(66) It is not legal for a corporation to hold life insurance policies on its employees.
(81) As the risk free rate of return increases,the value of call options ________ and the value of put options ________.
(67) Workers' compensation insurance provides coverage for on-the-job injuries suffered by employees.
(76) If you expect a stock's price to rise,it would be better to purchase a call on that stock than to purchase a put on it.
(93) The decision to purchase insurance is justified if the cost of the contract is less than the expected loss.
(86) The difference between a stock's current price and the striking price of the option is the minimum value of the option.
(73) A maker of breakfast cereals has contracted to buy 100,000 bushels of wheat for $4.50 a bushel at the end of October.On the delivery date,the spot price of wheat is $4.70 per bushel.Which of the following is true?
(86) Political risk is only a factor when the firm is considering foreign direct investments.
(88) 
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