Question 1

The term N(d2)  is:

Accepted Answer

A)   The European put option delta.
B)   The European call option delta.
C)   The probability of a value that is less than or equal to d2, given a standardized normally distributed random variable.
D)   The probability of a value that is greater than or equal to N(d1) , given a standardized normally distributed random variable.
E)   The symbol for the measure of sensitivity of an option's value to a change in the time to expiration.F) A) and E)
G) None of the above

Question 2

You currently own a one-year call option on Caspian Way stock. The current stock price is $38.70 and the risk-free rate of return is 3.85 percent. Your option has a strike price of $37.50 and you assume the option will finish in the money. What is the current value of your call option?

Accepted Answer

A)   $1.20
B)   $2.59
C)   $3.07
D)   $5.13
E)   $7.27F) A) and B)
G) B) and C)

Question 3

A ____________ is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price for a specified period of time.

Accepted Answer

A)   Futures contract.
B)   Call option.
C)   Put option.
D)   Swap.
E)   Forward contractF) A) and D)
G) None of the above

Question 4

C1 = 0 if (S1- E) < 0 identifies the value of a call option at expiration.

Accepted Answer

A) True 
 B)False

Question 5

Options that are frequently issued in conjunction with privately placed bonds are called:

Accepted Answer

A)   Calls.
B)   Puts.
C)   Warrants.
D)   Employee options.
E)   Debt options.F) A) and B)
G) All of the above

Question 6

In the Black-Scholes call option pricing model, N(d1)  is the probability that:

Accepted Answer

A)   A standardized, normally distributed random variable is less than or equal to d1.
B)   A standardized, normally distributed random variable is greater than or equal to d1.
C)   The call will finish in the money.
D)   The call will finish out of the money.
E)   The call will finish at the money.F) None of the above
G) C) and D)

Question 7

The Black-Scholes Option Pricing Model as it pertains to calls is based on the formula C = [S][N(d1)]-[E][N(d2)]/(1 + Rf)t for non-dividend paying stocks with European options.

Accepted Answer

A) True 
 B)False

Question 8

Today, you are buying a one-year call on SLO stock with a strike price of $50 along with a one-year risk-free asset that pays 4 percent interest. The cost of the call is $3.20 and the amount invested in the risk-free asset is $48.08. What is the most you can lose over the next year?

Accepted Answer

A)   -$3.33
B)   -$3.20
C)   -$3.08
D)   -$1.28
E)   -$0.72F) C) and D)
G) A) and E)

Question 9

ESOs may have a vesting period of up to three years.

Accepted Answer

A) True 
 B)False

Question 10

The value of a call increases when the volatility of the price of the underlying stock increases.

Accepted Answer

A) True 
 B)False

Question 11

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $16.67. Similar bonds have a market return of 9 percent. The current price of the stock is $17.50. What is the conversion value of this bond?

Accepted Answer

A)   $952.57
B)   $974.69
C)   $1,038.30
D)   $1,049.79
E)   $1,144.27F) C) and D)
G) B) and C)

Question 12

Selling a call option may give you the obligation to sell shares.

Accepted Answer

A) True 
 B)False

Question 13

The Black-Scholes Option Pricing Model as it pertains to calls is based on the stock price, strike price, time to maturity, standard deviation of the stock, and the price of the

Accepted Answer

A) True 
 B)False

Question 14

Suppose you are evaluating a bond that can be exchanged for shares of the issuing company's stock at a conversion price of $5 per share. The bond has a $50 annual coupon, five years to maturity, and straight debt of the same risk is priced to yield 8%. The current share price for the issuing firm is $4.50. What is the minimum value for which the bond should sell?

Accepted Answer

A)   $848.37
B)   $880.22
C)   $900.00
D)   $921.12
E)   $1,000.00F) B) and C)
G) B) and E)

Question 15

Which one of the following statements is correct?

Accepted Answer

A)   A callable bond allows the owner to force the issuer to repurchase the bond during some fixed time period.
B)   Equity in a leveraged firm is effectively a put option on the firm's assets.
C)   A warrant is similar to insurance.
D)   A loan guaranty is similar to a call option.
E)   An overallotment option is effectively a call option granted to the underwriter.F) A) and B)
G) C) and E)

Question 16

Suppose you look in the newspaper and see IBM trading at $250 per share. Calls on IBM with one month to expiration and an exercise price of $245 are trading at $6.50 each. Puts on IBM with one month to expiration and an exercise price of $255 are trading at $3.50 each. Are these prices reasonable? Explain. (Ignore transactions costs).

Accepted Answer

The calls are Ok since the intrinsic val...

Question 17

Given that the underlying stock price is $25, the March 22 1/2 put is in the money.

Accepted Answer

A) True 
 B)False

Question 18

The delta of a call option on a firm's assets is .613. This means that a $35,000 project will increase the value of equity by:

Accepted Answer

A)   $19,260.
B)   $21,455.
C)   $48,240.
D)   $56,455.
E)   $57,096.F) A) and B)
G) A) and D)

Question 19

You wrote three call option contracts with a strike price of $55 and an option premium of $.70. What is your net gain or loss on this investment if the price of the underlying stock is $53.30 on the option expiration date?

Accepted Answer

A)   -$720
B)   -$300
C)   -$210
D)   $210
E)   $720F) B) and E)
G) A) and D)

Question 20

The bonds of VDM, Inc. are convertible into shares of the firm's common stock at $50 per share. The current price of the common stock is $45 per share. The bonds have a $1,000 par value and currently sell for $950 apiece. When the bonds were issued, the market price of the common stock was $40. What is the conversion value of these bonds?

Accepted Answer

A)   $800
B)   $875
C)   $900
D)   $950
E)   $1,000F) C) and D)
G) A) and D)

Exam 25: Options and Corporate Securities

The Black-Scholes Option Pricing Model as it pertains to calls is based on the stock price, strike price, time to maturity, standard deviation of the stock, and the price of the

Correct Answer
verified

You wrote three call option contracts with a strike price of $55 and an option premium of $.70. What is your net gain or loss on this investment if the price of the underlying stock is $53.30 on the option expiration date?

Correct Answer
verified

Today, you are buying a one-year call on SLO stock with a strike price of $50 along with a one-year risk-free asset that pays 4 percent interest. The cost of the call is $3.20 and the amount invested in the risk-free asset is $48.08. What is the most you can lose over the next year?

Correct Answer
verified

The value of a call increases when the volatility of the price of the underlying stock increases.

Correct Answer
verified

Selling a call option may give you the obligation to sell shares.

Correct Answer
verified

The Black-Scholes Option Pricing Model as it pertains to calls is based on the formula C = [S][N(d₁)]-[E][N(d₂)]/(1 + R_f)^t for non-dividend paying stocks with European options.

Correct Answer
verified

Correct Answer
verified
The calls are Ok since the intrinsic val...
View Answer

You currently own a one-year call option on Caspian Way stock. The current stock price is $38.70 and the risk-free rate of return is 3.85 percent. Your option has a strike price of $37.50 and you assume the option will finish in the money. What is the current value of your call option?

Correct Answer
verified

Options that are frequently issued in conjunction with privately placed bonds are called:

Correct Answer
verified

ESOs may have a vesting period of up to three years.

Correct Answer
verified

Correct Answer
verified

In the Black-Scholes call option pricing model, N(d₁) is the probability that:

Correct Answer
verified

The delta of a call option on a firm's assets is .613. This means that a $35,000 project will increase the value of equity by:

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

C₁ = 0 if (S₁- E) < 0 identifies the value of a call option at expiration.

Correct Answer
verified

Correct Answer
verified

The term N(d₂) is:

Correct Answer
verified

Given that the underlying stock price is $25, the March 22 1/2 put is in the money.

Correct Answer
verified

A ____________ is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price for a specified period of time.

Correct Answer
verified

Exam 25: Options and Corporate Securities

The Black-Scholes Option Pricing Model as it pertains to calls is based on the stock price, strike price, time to maturity, standard deviation of the stock, and the price of the

Correct AnswerverifiedShow Answer

You wrote three call option contracts with a strike price of $55 and an option premium of $.70. What is your net gain or loss on this investment if the price of the underlying stock is $53.30 on the option expiration date?

Correct AnswerverifiedShow Answer

Today, you are buying a one-year call on SLO stock with a strike price of $50 along with a one-year risk-free asset that pays 4 percent interest. The cost of the call is $3.20 and the amount invested in the risk-free asset is $48.08. What is the most you can lose over the next year?

Correct AnswerverifiedShow Answer

The value of a call increases when the volatility of the price of the underlying stock increases.

Correct AnswerverifiedShow Answer

Selling a call option may give you the obligation to sell shares.

Correct AnswerverifiedShow Answer

The Black-Scholes Option Pricing Model as it pertains to calls is based on the formula C = [S][N(d1)]-[E][N(d2)]/(1 + Rf)t for non-dividend paying stocks with European options.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe calls are Ok since the intrinsic val...View AnswerShow Answer

You currently own a one-year call option on Caspian Way stock. The current stock price is $38.70 and the risk-free rate of return is 3.85 percent. Your option has a strike price of $37.50 and you assume the option will finish in the money. What is the current value of your call option?

Correct AnswerverifiedShow Answer

Options that are frequently issued in conjunction with privately placed bonds are called:

Correct AnswerverifiedShow Answer

ESOs may have a vesting period of up to three years.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the Black-Scholes call option pricing model, N(d1) is the probability that:

Correct AnswerverifiedShow Answer

The delta of a call option on a firm's assets is .613. This means that a $35,000 project will increase the value of equity by:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

C1 = 0 if (S1- E) < 0 identifies the value of a call option at expiration.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The term N(d2) is:

Correct AnswerverifiedShow Answer

Given that the underlying stock price is $25, the March 22 1/2 put is in the money.

Correct AnswerverifiedShow Answer

A ____________ is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price for a specified period of time.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Black-Scholes Option Pricing Model as it pertains to calls is based on the formula C = [S][N(d₁)]-[E][N(d₂)]/(1 + R_f)^t for non-dividend paying stocks with European options.

Correct Answer
verified

Correct Answer
verified
The calls are Ok since the intrinsic val...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In the Black-Scholes call option pricing model, N(d₁) is the probability that:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

C₁ = 0 if (S₁- E) < 0 identifies the value of a call option at expiration.

Correct Answer
verified

Correct Answer
verified

The term N(d₂) is:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified