Question 1

The present value of the strike price can be defined as:

Accepted Answer

A)   Price that represents the highest probability of the future value of the stock price.
B)   A T-bill with a face value equal to the strike price.
C)   The price that reflects the volatility of the underlying stock.
D)   The present value of a risky security discounted at the market rate of return.
E)   The current market value of the underlying security.F) B) and E)
G) C) and E)

Question 2

You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4 percent. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option?

Accepted Answer

A)   $6.25
B)   $6.50
C)   $6.76
D)   $7.13
E)   $7.27F) B) and D)
G) C) and D)

Question 3

Underlying stock price: 25  What is the market value per share of the March call?

Accepted Answer

A)   $4
B)   $5
C)   $6
D)   $7
E)   $12F) A) and E)
G) A) and D)

Question 4

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of:

Accepted Answer

A)   Put; $62,000.
B)   Put; $50,000.
C)   Warrant; $62,000.
D)   Call; $62,000.
E)   Call; $50,000.F) None of the above
G) D) and E)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true for a firm with positive earnings?

Accepted Answer

A)   When bonds are converted into shares of stock, earnings per share increases.
B)   When warrants are exercised, earnings per share increases.
C)   The number of shares of stock outstanding will decrease with either convertible bonds or warrants.
D)   Exercise of warrants and conversion of bonds will always result in a decrease in the price of the stock.
E)   Fully diluted earnings per share with either warrants or convertible bonds will be lower than earnings per share based only on shares presently outstanding.F) B) and E)
G) B) and C)

Question 7

A decrease in the Variance of return of the underlying asset will increase the value of a put option.

Accepted Answer

A) True 
 B)False

Question 8

What is the conversion ratio?

Accepted Answer

A)   9.8
B)   12.3
C)   15.4
D)   16.7
E)   22.2F) A) and B)
G) B) and C)

Question 9

The value of an American call option decreases when the value of the underlying asset decreases.

Accepted Answer

A) True 
 B)False

Question 10

Warrants are generally:

Accepted Answer

A)   Issued in connection with publicly traded bonds.
B)   Traded directly between individuals rather than on an exchange.
C)   Structured similar to long-term put options.
D)   Issued by individuals.
E)   Separated from the security they were originally attached to and then traded.F) B) and E)
G) B) and D)

Question 11

Which of the following best defines a put option?

Accepted Answer

A)   The lower bound of an option's value, or what the option would be worth if it were about to expire.
B)   A contract that gives its owner the right to buy or sell some asset at a fixed price on or before a given date.
C)   The value of a convertible bond if it could not be converted into common stock.
D)   The right to sell an asset at a fixed price during a particular period of time. The opposite of a call option.
E)   An option with payoffs in real goods.F) A) and B)
G) A) and E)

Question 12

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

Accepted Answer

A)   -$250
B)   -$50
C)   $0
D)   $50
E)   $250F) A) and E)
G) A) and D)

Question 13

Underlying stock price: 45.80 rd Friday in October for $45 per share? A)  Oct 45 call B)  Oct 47.50 call C)  Oct 50 put D)  Oct 45 put E)  Nov 47.50 put" class="answers-bank-image d-inline" rel="preload" > What option would you buy if you want to have the right to sell 100 shares of Glaxo stock on or before the 3rd Friday in October for $45 per share?

Accepted Answer

A)   Oct 45 call
B)   Oct 47.50 call
C)   Oct 50 put
D)   Oct 45 put
E)   Nov 47.50 putF) A) and B)
G) B) and E)

Question 14

John and Randy form a company with assets worth $900. They each have two shares of stock. The firm sells Cheri a warrant for one share of stock. The warrant has an exercise price of $200 and expires in one year. In one year, the firm's assets are worth $1,200 immediately before expiration of the warrant. Should Cheri exercise the warrant?

Accepted Answer

A)   No, because the option is out of the money.
B)   Yes, because she stands to gain $40 by exercising.
C)   Yes, because she stands to gain $80 by exercising.
D)   Yes, because she stands to gain $100 by exercising.
E)   We can't tell without knowing what she paid for the warrant.F) C) and E)
G) None of the above

Question 15

The conversion ratio is defined as the:

Accepted Answer

A)   Market value of a bond divided by the face value of the bond.
B)   Market value of a bond divided by the conversion price.
C)   Increase in the market value that would be realized if a bond were exchanged for stock.
D)   Number of shares of stock that can be received in exchange for one bond.
E)   Dollar amount of a bond's par value that is exchangeable for one share of stock.F) C) and E)
G) All of the above

Question 16

The buyer of a European put has the:

Accepted Answer

A)   Obligation to buy an asset at the strike price on the expiration date.
B)   Obligation to sell an asset on or before the expiration date if requested to do so.
C)   Right, but not the obligation, to sell an asset at the strike price on the expiration date.
D)   Right, but not the obligation, to buy an asset at any time up to and including the expiration date.
E)   Right, but not the obligation, to sell an asset at the strike price at any time up to and including the expiration date.F) C) and D)
G) A) and D)

Question 17

ESOs generally contain a guarantee that the option will be re-struck if it goes underwater.

Accepted Answer

A) True 
 B)False

Question 18

The maximum value of a convertible bond is theoretically:

Accepted Answer

A)   Equal to the conversion value minus the straight bond value.
B)   Equal to the face value of the bond multiplied by (1 + conversion price) .
C)   Limited to the maximum straight bond value.
D)   Limited by the face value of the bond.
E)   Unlimited.F) A) and B)
G) B) and D)

Question 19

The intrinsic value of an option is the:

Accepted Answer

A)   Value when the option is initially written.
B)   Value related to the time to expiration.
C)   Arbitrage value.
D)   Lower bound of the option's value.
E)   Value of the underlying asset.F) D) and E)
G) B) and C)

Question 20

The value of a call increases when the risk-free rate of return increases.

Accepted Answer

A) True 
 B)False

Exam 25: Options and Corporate Securities

You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4 percent. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option?

Correct Answer
verified

The maximum value of a convertible bond is theoretically:

Correct Answer
verified

Underlying stock price: 25 What is the market value per share of the March call?

Correct Answer
verified

The conversion ratio is defined as the:

Correct Answer
verified

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

Correct Answer
verified

The intrinsic value of an option is the:

Correct Answer
verified

Correct Answer
verified

The value of an American call option decreases when the value of the underlying asset decreases.

Correct Answer
verified

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

Correct Answer
verified

The buyer of a European put has the:

Correct Answer
verified

What is the conversion ratio?

Correct Answer
verified

The value of a call increases when the risk-free rate of return increases.

Correct Answer
verified

Which of the following best defines a put option?

Correct Answer
verified

ESOs generally contain a guarantee that the option will be re-struck if it goes underwater.

Correct Answer
verified

Which of the following is true for a firm with positive earnings?

Correct Answer
verified

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of:

Correct Answer
verified

The present value of the strike price can be defined as:

Correct Answer
verified

A decrease in the Variance of return of the underlying asset will increase the value of a put option.

Correct Answer
verified

Warrants are generally:

Correct Answer
verified

Underlying stock price: 45.80 What option would you buy if you want to have the right to sell 100 shares of Glaxo stock on or before the 3^rdFriday in October for $45 per share?

Correct Answer
verified

Exam 25: Options and Corporate Securities

You currently own a one-year call option on Way-One, Inc. stock. The current stock price is $26.50 and the risk-free rate of return is 4 percent. Your option has a strike price of $20 and you assume that it will finish in the money. What is the current value of your call option?

Correct AnswerverifiedShow Answer

The maximum value of a convertible bond is theoretically:

Correct AnswerverifiedShow Answer

Underlying stock price: 25 What is the market value per share of the March call?

Correct AnswerverifiedShow Answer

The conversion ratio is defined as the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The intrinsic value of an option is the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The value of an American call option decreases when the value of the underlying asset decreases.

Correct AnswerverifiedShow Answer

You own five put option contracts on XYZ stock with an exercise price of $25. What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

Correct AnswerverifiedShow Answer

The buyer of a European put has the:

Correct AnswerverifiedShow Answer

What is the conversion ratio?

Correct AnswerverifiedShow Answer

The value of a call increases when the risk-free rate of return increases.

Correct AnswerverifiedShow Answer

Which of the following best defines a put option?

Correct AnswerverifiedShow Answer

ESOs generally contain a guarantee that the option will be re-struck if it goes underwater.

Correct AnswerverifiedShow Answer

Which of the following is true for a firm with positive earnings?

Correct AnswerverifiedShow Answer

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of:

Correct AnswerverifiedShow Answer

The present value of the strike price can be defined as:

Correct AnswerverifiedShow Answer

A decrease in the Variance of return of the underlying asset will increase the value of a put option.

Correct AnswerverifiedShow Answer

Warrants are generally:

Correct AnswerverifiedShow Answer

Underlying stock price: 45.80 What option would you buy if you want to have the right to sell 100 shares of Glaxo stock on or before the 3rd Friday in October for $45 per share?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Underlying stock price: 45.80 What option would you buy if you want to have the right to sell 100 shares of Glaxo stock on or before the 3^rdFriday in October for $45 per share?

Correct Answer
verified