Question 1

A stock is currently selling for $36 a share.The risk-free rate is 3.8 percent and the standard deviation is 27 percent.What is the value of d1 of a 9-month call option with a strike price of $40?

Accepted Answer

A)  -0.21872
B)  -0.21179
C)  -0.21047
D)  -0.20950
E)  -0.20356F) B) and D)
G) A) and B)

Question 2

In the Black-Scholes option pricing formula,N(d1) is the probability that a standardized,normally distributed random variable is:

Accepted Answer

A)  less than or equal to N(d2) .
B)  less than one.
C)  equal to one.
D)  equal to d1.
E)  less than or equal to d1.F) A) and D)
G) A) and C)

Question 3

A stock is selling for $60 per share.A call option with an exercise price of $65 sells for $3.31 and expires in 4 months.The risk-free rate of interest is 2.8 percent per year,compounded continuously.What is the price of a put option with the same exercise price and expiration date?

Accepted Answer

A)  $5.99
B)  $6.23
C)  $6.47
D)  $7.21
E)  $8.94F) A) and C)
G) A) and E)

Question 4

The delta of a call option on a firm's assets is 0.727.This means that a $195,000 project will increase the value of equity by:

Accepted Answer

A)  $141,765.
B)  $180,219.
C)  $211,481.
D)  $264,909.
E)  $268,226.F) C) and E)
G) C) and D)

Question 5

Today,you are buying a one-year call on Piper Sons stock with a strike price of $27.50 per share and a one-year risk-free asset which pays 4 percent interest.The cost of the call is $1.40 per share and the amount invested in the risk-free asset is $26.57.How much total profit will you earn on these purchases if the stock has a market price of $29 one year from now?

Accepted Answer

A)  $0.10
B)  $0.85
C)  $1.16
D)  $1.20
E)  $1.27F) A) and D)
G) A) and C)

Question 6

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 E)
G) A) and C)

Question 7

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) A) and D)
G) C) and D)

Question 8

The current market value of the assets of Smethwell,Inc.is $54 million,with a standard deviation of 16 percent per year.The firm has zero-coupon bonds outstanding with a total face value of $40 million.These bonds mature in 2 years.The risk-free rate is 4 percent per year compounded continuously.What is the value of d1?

Accepted Answer

A)  1.32
B)  1.48
C)  1.67
D)  1.79
E)  2.06F) A) and B)
G) B) and D)

Question 9

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) A) and B)
G) A) and C)

Question 10

What is the value of a 3-month put with a strike price of $45 given the Black-Scholes option pricing model and the following information?

Accepted Answer

A)  $0.57
B)  $0.63
C)  $0.91
D)  $1.36
E)  $1.54F) D) and E)
G) A) and B) C

Question 11

Theta measures an option's:

Accepted Answer

A)  intrinsic value.
B)  volatility.
C)  rate of time decay.
D)  sensitivity to changes in the value of the underlying asset.
E)  sensitivity to risk-free rate changes.F) B) and E)
G) A) and C)

Question 12

A.K.Scott's stock is selling for $37 a share.A 3-month call on this stock with a strike price of $35 is priced at $3.40.Risk-free assets are currently returning 0.18 percent per month.What is the price of a 3-month put on this stock with a strike price of $35?

Accepted Answer

A)  $1.71
B)  $2.49
C)  $2.99
D)  $3.85
E)  $4.20F) C) and D)
G) A) and E)

Question 13

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) None of the above
G) A) and B)

Question 14

Wesleyville Markets stock is selling for $36 a share.The 9-month $40 call on this stock is selling for $2.23 while the 9-month $40 put is priced at $5.63.What is the continuously compounded risk-free rate of return?

Accepted Answer

A)  0.87 percent
B)  1.11 percent
C)  1.38 percent
D)  1.56 percent
E)  2.02 percentF) A) and C)
G) A) and B)

Question 15

Pure financial mergers:

Accepted Answer

A)  are beneficial to stockholders.
B)  are beneficial to both stockholders and bondholders.
C)  are detrimental to stockholders.
D)  add value to both the total assets and the total equity of a firm.
E)  reduce both the total assets and the total equity of a firm.F) All of the above
G) D) and E) C

Question 16

Today,you purchased 100 shares of Lazy Z stock at a market price of $47 per share.You also bought a one year,$45 put option on Lazy Z stock at a cost of $0.15 per share.What is the maximum total amount you can lose on these purchases?

Accepted Answer

A)  -$4,715
B)  -$4,685
C)  -$4,015
D)  -$215
E)  -$0F) B) and E)
G) C) and D)

Question 17

Which one of the following statements is correct?

Accepted Answer

A)  The price of an American put is equal to the stock price minus the exercise price.
B)  The value of a European call is greater than the value of a comparable American call.
C)  The value of a put is equal to one minus the value of an equivalent call.
D)  The value of a put minus the value of a comparable call is equal to the value of the stock minus the exercise price.
E)  The value of an American put will equal or exceed the value of a comparable European put.F) B) and D)
G) D) and E)

Question 18

Paying off a firm's debt is comparable to _____ on the assets of the firm.

Accepted Answer

A)  purchasing a put option
B)  purchasing a call option
C)  exercising an in-the-money put option
D)  exercising an in-the-money call option
E)  selling a call optionF) A) and C)
G) A) and B)

Question 19

Today,you are buying a one-year call on one share of Webster United stock with a strike price of $40 per share and a one-year risk-free asset that pays 4 percent interest.The cost of the call is $1.85 per share and the amount invested in the risk-free asset is $38.46.What is the most you can lose on these purchases over the next year?

Accepted Answer

A)  -$1.85
B)  -$0.31
C)  $0
D)  $0.42
E)  $1.54F) All of the above
G) None of the above B

Question 20

A firm has assets of $21.8 million and a 3-year,zero-coupon,risky bonds with a total face value of $8.5 million.The bonds have a total current market value of $8.1 million.How can the shareholders of this firm change these risky bonds into risk-free bonds?

Accepted Answer

A)  purchase a call option with a 1-year life and a $8.1 million face value
B)  purchase a call option with a 5-year life and a $8.5 million face value
C)  purchase a put option with a 1-year life and a $21.8 million face value
D)  purchase a put option with a 3-year life and a $8.1 million face value
E)  purchase a put option with a 3-year life and an $8.5 million face valueF) B) and C)
G) A) and E)

Exam 25: Option Valuation

A stock is currently selling for $36 a share.The risk-free rate is 3.8 percent and the standard deviation is 27 percent.What is the value of d₁ of a 9-month call option with a strike price of $40?

Correct Answer
verified

In the Black-Scholes option pricing formula,N(d₁) is the probability that a standardized,normally distributed random variable is:

Correct Answer
verified

A stock is selling for $60 per share.A call option with an exercise price of $65 sells for $3.31 and expires in 4 months.The risk-free rate of interest is 2.8 percent per year,compounded continuously.What is the price of a put option with the same exercise price and expiration date?

Correct Answer
verified

The delta of a call option on a firm's assets is 0.727.This means that a $195,000 project will increase the value of equity by:

Correct Answer
verified

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

Correct Answer
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Correct Answer
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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

What is the value of a 3-month put with a strike price of $45 given the Black-Scholes option pricing model and the following information?

Correct Answer
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C

Theta measures an option's:

Correct Answer
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A.K.Scott's stock is selling for $37 a share.A 3-month call on this stock with a strike price of $35 is priced at $3.40.Risk-free assets are currently returning 0.18 percent per month.What is the price of a 3-month put on this stock with a strike price of $35?

Correct Answer
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Correct Answer
verified

Wesleyville Markets stock is selling for $36 a share.The 9-month $40 call on this stock is selling for $2.23 while the 9-month $40 put is priced at $5.63.What is the continuously compounded risk-free rate of return?

Correct Answer
verified

Pure financial mergers:

Correct Answer
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C

Today,you purchased 100 shares of Lazy Z stock at a market price of $47 per share.You also bought a one year,$45 put option on Lazy Z stock at a cost of $0.15 per share.What is the maximum total amount you can lose on these purchases?

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Paying off a firm's debt is comparable to _____ on the assets of the firm.

Correct Answer
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Correct Answer
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B

A firm has assets of $21.8 million and a 3-year,zero-coupon,risky bonds with a total face value of $8.5 million.The bonds have a total current market value of $8.1 million.How can the shareholders of this firm change these risky bonds into risk-free bonds?

Correct Answer
verified

Exam 25: Option Valuation

A stock is currently selling for $36 a share.The risk-free rate is 3.8 percent and the standard deviation is 27 percent.What is the value of d1 of a 9-month call option with a strike price of $40?

Correct AnswerverifiedShow Answer

In the Black-Scholes option pricing formula,N(d1) is the probability that a standardized,normally distributed random variable is:

Correct AnswerverifiedShow Answer

A stock is selling for $60 per share.A call option with an exercise price of $65 sells for $3.31 and expires in 4 months.The risk-free rate of interest is 2.8 percent per year,compounded continuously.What is the price of a put option with the same exercise price and expiration date?

Correct AnswerverifiedShow Answer

The delta of a call option on a firm's assets is 0.727.This means that a $195,000 project will increase the value of equity by:

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

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

What is the value of a 3-month put with a strike price of $45 given the Black-Scholes option pricing model and the following information?

Correct AnswerverifiedC

Theta measures an option's:

Correct AnswerverifiedShow Answer

A.K.Scott's stock is selling for $37 a share.A 3-month call on this stock with a strike price of $35 is priced at $3.40.Risk-free assets are currently returning 0.18 percent per month.What is the price of a 3-month put on this stock with a strike price of $35?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Wesleyville Markets stock is selling for $36 a share.The 9-month $40 call on this stock is selling for $2.23 while the 9-month $40 put is priced at $5.63.What is the continuously compounded risk-free rate of return?

Correct AnswerverifiedShow Answer

Pure financial mergers:

Correct AnswerverifiedC

Today,you purchased 100 shares of Lazy Z stock at a market price of $47 per share.You also bought a one year,$45 put option on Lazy Z stock at a cost of $0.15 per share.What is the maximum total amount you can lose on these purchases?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Paying off a firm's debt is comparable to _____ on the assets of the firm.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

A firm has assets of $21.8 million and a 3-year,zero-coupon,risky bonds with a total face value of $8.5 million.The bonds have a total current market value of $8.1 million.How can the shareholders of this firm change these risky bonds into risk-free bonds?

Correct AnswerverifiedShow Answer

A stock is currently selling for $36 a share.The risk-free rate is 3.8 percent and the standard deviation is 27 percent.What is the value of d₁ of a 9-month call option with a strike price of $40?

Correct Answer
verified

In the Black-Scholes option pricing formula,N(d₁) is the probability that a standardized,normally distributed random variable is:

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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C

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B

Correct Answer
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