Exam 21: Option Applications and Corporate Finance

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 call options are in-the-money?

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 ________.

Which of the following will not increase the value of a put option?

A share of stock is a ________ option on the assets of the firm with a strike price equal to ________.

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?

Suppose that a stock sells at a price of $60 on the expiration date. Compute the payoff to the seller of a put option if the option strike price is $80.

The ________ is the total number of contracts of a particular option that have been written and not yet closed.

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 ________.

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

KD Industries stock is currently trading at $32 per share. Consider a put option on KD stock with a strike price of $30. The intrinsic value of this put option is ________.

When is an option in-the-money?

Using an option to reduce the risk of a portfolio is called ________, while using options to bet on the direction of the market or an asset is called ________.

Use the figure for the question below. -This graph depicts the payoffs of a ________.

When a company writes a call option on new stock in the company, it is called a ________.

Luther Industries is currently trading for $27 per share. The stock pays no dividends. A one-year European put option on Luther with a strike price of $30 is currently trading for $2.60. If the risk-free interest rate is 6% per year, then the price of a one-year European call option on Luther with a strike price of $30 will be closest to ________.

________ options allow the holder to exercise the option only on the expiration date.

When the exercise price of a call option is higher than the current price of the stock, the option is said to be ________.

A European option on a stock is more valuable than an otherwise similar American option on the same stock.

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

Use the table for the question(s) below. Consider the following information on options from the CBOE for Rackspace. RAX 30.09 +0.48 -The open interest for a January 2011 call option that is closest to being at-the-money is ________.