Question 1

-The current market value of the assets of Cristopherson Supply is $46.5 million.The market value of the equity is $28.7 million.The risk-free rate is 4.75 percent and the outstanding debt matures in 4 years.What is the market value of the firm's debt?

Accepted Answer

A)   $17.80 million
B)   $19.80 million
C)   $20.23 million
D)   $22.66 million
E)   $23.01 millionF) B) and C)
G) None of the above

Question 2

Cell Tower stock has a current market price of $62 a share.The one-year call on Cell Tower stock with a strike price of $65 is priced at $7.16 while the one-year put with a strike price of $65 is priced at $7.69.What is the risk-free rate of return?

Accepted Answer

A)   3.95 percent
B)   4.21 percent
C)   4.67 percent
D)   5.38 percent
E)   5.57 percentF) C) and D)
G) B) and C)

Question 3

Which one of the following statements is correct?

Accepted Answer

A)   Mergers benefit shareholders but not creditors.
B)   Positive NPV projects will automatically benefit both creditors and shareholders.
C)   Shareholders might prefer a negative NPV project over a positive NPV project.
D)   Creditors prefer negative NPV projects while shareholders prefer positive NPV projects.
E)   Mergers rarely affect bondholders.F) All of the above
G) None of the above

Question 4

Grocery Express stock is selling for $22 a share.A 3-month,$20 call on this stock is priced at $2.85.Risk-free assets are currently returning 0.2 percent per month.What is the price of a 3-month put on Grocery Express stock with a strike price of $20?

Accepted Answer

A)   $0.37
B)   $0.73
C)   $0.87
D)   $1.10
E)   $1.18F) C) and D)
G) B) and C)

Question 5

What is the value of d2 given the following information on a stock? 2 given the following information on a stock?   A)  0.1218 B)  0.1225 C)  0.1313 D)  0.1335 E)  0.1340" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   0.1218
B)   0.1225
C)   0.1313
D)   0.1335
E)   0.1340F) C) and D)
G) A) and B)

Question 6

Selling an option is generally more valuable than exercising the option because of the option's:

Accepted Answer

A)   riskless value.
B)   intrinsic value.
C)   standard deviation.
D)   exercise price.
E)   time premium.F) A) and B)
G) A) and E)

Question 7

In the Black-Scholes model,the symbol "σ" is used to represent the standard deviation of the:

Accepted Answer

A)   option premium on a call with a specified exercise price.
B)   rate of return on the underlying asset.
C)   volatility of the risk-free rate of return.
D)   rate of return on a risk-free asset.
E)   option premium on a put with a specified exercise price.F) A) and E)
G) D) and E)

Question 8

You need $12,000 in 6 years.How much will you need to deposit today if you can earn 11 percent per year,compounded continuously? Assume this is the only deposit you make.

Accepted Answer

A)   $6,000.00
B)   $6,048.50
C)   $6,179.25
D)   $6,202.22
E)   $6,415.69F) B) and D)
G) A) and B)

Question 9

Which one of the following will provide you with the same value that you would have if you just purchased BAT stock?

Accepted Answer

A)   sell a put option on BAT stock and invest at the risk-free rate of return
B)   buy both a call option and a put option on BAT stock and also lend out funds at the risk-free rate
C)   sell a put and buy a call on BAT stock as well as invest at the risk-free rate of return
D)   lend out funds at the risk-free rate of return and sell a put option on BAT stock
E)   borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options on BAT stockF) B) and E)
G) None of the above

Question 10

J&N,Inc.stock has a current market price of $46 a share.The one-year call on this stock with a strike price of $55 is priced at $0.05 while the one-year put with a strike price of $55 is priced at $8.24.What is the risk-free rate of return?

Accepted Answer

A)   1.49 percent
B)   1.82 percent
C)   3.10 percent
D)   3.64 percent
E)   4.21 percentF) C) and D)
G) A) and C)

Question 11

This morning,Krystal purchased shares of Global Markets stock at a cost of $39.40 per share.She simultaneously purchased puts on Global Markets stock at a cost of $1.50 per share and a strike price of $40 per share.The put expires in one year.How much profit will she earn per share on these transactions if the stock is worth $38 a share one year from now?

Accepted Answer

A)   -$2.65
B)   -$1.25
C)   -$0.90
D)   $0.60
E)   $1.25F) C) and E)
G) All of the above

Question 12

Amy just purchased a right to buy 100 shares of LKL stock for $35 a share on June 20,2012.Which one of the following did Amy purchase?

Accepted Answer

A)   American delta
B)   American call
C)   American put
D)   European put
E)   European callF) A) and C)
G) A) and E)

Question 13

Given the following information,what is the value of d2 as it is used in the Black-Scholes option pricing model? 2 as it is used in the Black-Scholes option pricing model?   A)  -1.1346 B)  -0.8657 C)  -0.8241 D)  -0.7427 E)  -0.7238" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   -1.1346
B)   -0.8657
C)   -0.8241
D)   -0.7427
E)   -0.7238F) B) and E)
G) A) and C)

Question 14

The Black-Scholes option pricing model can be used for:

Accepted Answer

A)   American options but not European options.
B)   European options but not American options.
C)   call options but not put options.
D)   put options but not call options.
E)   both zero coupon bonds and coupon bonds.F) A) and D)
G) B) and D)

Question 15

Traci wants to have $16,000 six years from now and wants to deposit just one lump sum amount today.The annual percentage rate applicable to her investment is 6.8 percent.Which one of the following methods of compounding interest will allow her to deposit the least amount possible today?

Accepted Answer

A)   annual
B)   daily
C)   quarterly
D)   monthly
E)   continuousF) A) and D)
G) None of the above

Question 16

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Accepted Answer

A)   residual error
B)   implied mean return
C)   derived case volatility (DCV) 
D)   forecast rho
E)   implied standard deviation (IS
D)  F) C) and D)
G) A) and B)

Question 17

Explain why financial mergers tend to benefit bondholders more than shareholders.

Accepted Answer

Financial mergers tend to lower the risk...

Question 18

Which of the following affect the value of a call option?
I.strike price
II.time to maturity
III.standard deviation of the returns on a risk-free asset
IV.risk-free rate

Accepted Answer

A)   I and III only
B)   II and IV only
C)   I,II,and IV only
D)   II,III,and IV only
E)   I,II,III,and IVF) B) and D)
G) B) and E)

Question 19

Explain why the equity ownership of a firm is equivalent to owning a call option on the firm's assets.

Accepted Answer

Equity is equal to asset minus liabiliti...

Question 20

A decrease in which of the following will increase the value of a put option on a stock?
I.time to expiration
II.stock price
III.exercise price
IV.risk-free rate

Accepted Answer

A)   III only
B)   II and IV only
C)   I and III only
D)   I,II,and III only
E)   II,III,and IV onlyF) B) and C)
G) A) and B)

Exam 25: Option Valuation

What is the value of d₂ given the following information on a stock?

Correct Answer
verified

In the Black-Scholes model,the symbol "σ" is used to represent the standard deviation of the:

Correct Answer
verified

Selling an option is generally more valuable than exercising the option because of the option's:

Correct Answer
verified

A decrease in which of the following will increase the value of a put option on a stock? I.time to expiration II.stock price III.exercise price IV.risk-free rate

Correct Answer
verified

Explain why financial mergers tend to benefit bondholders more than shareholders.

Correct Answer
verified
Financial mergers tend to lower the risk...
View Answer

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Correct Answer
verified

Which one of the following will provide you with the same value that you would have if you just purchased BAT stock?

Correct Answer
verified

Given the following information,what is the value of d₂ as it is used in the Black-Scholes option pricing model?

Correct Answer
verified

Which of the following affect the value of a call option? I.strike price II.time to maturity III.standard deviation of the returns on a risk-free asset IV.risk-free rate

Correct Answer
verified

Traci wants to have $16,000 six years from now and wants to deposit just one lump sum amount today.The annual percentage rate applicable to her investment is 6.8 percent.Which one of the following methods of compounding interest will allow her to deposit the least amount possible today?

Correct Answer
verified

Cell Tower stock has a current market price of $62 a share.The one-year call on Cell Tower stock with a strike price of $65 is priced at $7.16 while the one-year put with a strike price of $65 is priced at $7.69.What is the risk-free rate of return?

Correct Answer
verified

J&N,Inc.stock has a current market price of $46 a share.The one-year call on this stock with a strike price of $55 is priced at $0.05 while the one-year put with a strike price of $55 is priced at $8.24.What is the risk-free rate of return?

Correct Answer
verified

The Black-Scholes option pricing model can be used for:

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

Amy just purchased a right to buy 100 shares of LKL stock for $35 a share on June 20,2012.Which one of the following did Amy purchase?

Correct Answer
verified

Grocery Express stock is selling for $22 a share.A 3-month,$20 call on this stock is priced at $2.85.Risk-free assets are currently returning 0.2 percent per month.What is the price of a 3-month put on Grocery Express stock with a strike price of $20?

Correct Answer
verified

-The current market value of the assets of Cristopherson Supply is $46.5 million.The market value of the equity is $28.7 million.The risk-free rate is 4.75 percent and the outstanding debt matures in 4 years.What is the market value of the firm's debt?

Correct Answer
verified

Explain why the equity ownership of a firm is equivalent to owning a call option on the firm's assets.

Correct Answer
verified
Equity is equal to asset minus liabiliti...
View Answer

You need $12,000 in 6 years.How much will you need to deposit today if you can earn 11 percent per year,compounded continuously? Assume this is the only deposit you make.

Correct Answer
verified

Exam 25: Option Valuation

What is the value of d2 given the following information on a stock?

Correct AnswerverifiedShow Answer

In the Black-Scholes model,the symbol "σ" is used to represent the standard deviation of the:

Correct AnswerverifiedShow Answer

Selling an option is generally more valuable than exercising the option because of the option's:

Correct AnswerverifiedShow Answer

A decrease in which of the following will increase the value of a put option on a stock? I.time to expiration II.stock price III.exercise price IV.risk-free rate

Correct AnswerverifiedShow Answer

Explain why financial mergers tend to benefit bondholders more than shareholders.

Correct AnswerverifiedFinancial mergers tend to lower the risk...View AnswerShow Answer

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following will provide you with the same value that you would have if you just purchased BAT stock?

Correct AnswerverifiedShow Answer

Given the following information,what is the value of d2 as it is used in the Black-Scholes option pricing model?

Correct AnswerverifiedShow Answer

Which of the following affect the value of a call option? I.strike price II.time to maturity III.standard deviation of the returns on a risk-free asset IV.risk-free rate

Correct AnswerverifiedShow Answer

Traci wants to have $16,000 six years from now and wants to deposit just one lump sum amount today.The annual percentage rate applicable to her investment is 6.8 percent.Which one of the following methods of compounding interest will allow her to deposit the least amount possible today?

Correct AnswerverifiedShow Answer

Cell Tower stock has a current market price of $62 a share.The one-year call on Cell Tower stock with a strike price of $65 is priced at $7.16 while the one-year put with a strike price of $65 is priced at $7.69.What is the risk-free rate of return?

Correct AnswerverifiedShow Answer

J&N,Inc.stock has a current market price of $46 a share.The one-year call on this stock with a strike price of $55 is priced at $0.05 while the one-year put with a strike price of $55 is priced at $8.24.What is the risk-free rate of return?

Correct AnswerverifiedShow Answer

The Black-Scholes option pricing model can be used for:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Amy just purchased a right to buy 100 shares of LKL stock for $35 a share on June 20,2012.Which one of the following did Amy purchase?

Correct AnswerverifiedShow Answer

Grocery Express stock is selling for $22 a share.A 3-month,$20 call on this stock is priced at $2.85.Risk-free assets are currently returning 0.2 percent per month.What is the price of a 3-month put on Grocery Express stock with a strike price of $20?

Correct AnswerverifiedShow Answer

-The current market value of the assets of Cristopherson Supply is $46.5 million.The market value of the equity is $28.7 million.The risk-free rate is 4.75 percent and the outstanding debt matures in 4 years.What is the market value of the firm's debt?

Correct AnswerverifiedShow Answer

Explain why the equity ownership of a firm is equivalent to owning a call option on the firm's assets.

Correct AnswerverifiedEquity is equal to asset minus liabiliti...View AnswerShow Answer

You need $12,000 in 6 years.How much will you need to deposit today if you can earn 11 percent per year,compounded continuously? Assume this is the only deposit you make.

Correct AnswerverifiedShow Answer

What is the value of d₂ given the following information on a stock?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Financial mergers tend to lower the risk...
View Answer

Correct Answer
verified

Correct Answer
verified

Given the following information,what is the value of d₂ as it is used in the Black-Scholes option pricing model?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Equity is equal to asset minus liabiliti...
View Answer

Correct Answer
verified