Question 1

Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

Accepted Answer

A)   Strike price.
B)   Variability of the stock price.
C)   Option's time to maturity.
D)   All of the above.E) None of the above
F) A) and D)

Question 2

Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be?

Accepted Answer

A)   -$510.25
B)   $1,989.75
C)   $2,089.24
D)   $2,193.70
E)   $2,303.38F) A) and C)
G) D) and E)

Question 3

Because of the time value of money, the longer before an option expires, the less valuable the option will be, other things held constant.

Accepted Answer

A) True 
 B)False

Question 4

Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be?

Accepted Answer

A)   -$310.25
B)   $1,689.75
C)   $1,774.24
D)   $1,862.95
E)   $1,956.10F) A) and B)
G) C) and E)

Question 5

Since investors tend to dislike risk and like certainty, the more volatile a stock, the less valuable will be an option to purchase the stock, other things held constant.

Accepted Answer

A) True 
 B)False

Question 6

Because of the put-call parity relationship, under equilibrium
1.
conditions a put option on a stock must sell at exactly the same price as a call option on the stock, provided the strike prices for the put and call are the same.

Accepted Answer

A) True 
 B)False

Exam 8: Financial Options and Applications in Corporate Finance

Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

Correct Answer
verified

Because of the time value of money, the longer before an option expires, the less valuable the option will be, other things held constant.

Correct Answer
verified

Correct Answer
verified

Because of the put-call parity relationship, under equilibrium 1. conditions a put option on a stock must sell at exactly the same price as a call option on the stock, provided the strike prices for the put and call are the same.

Correct Answer
verified

Since investors tend to dislike risk and like certainty, the more volatile a stock, the less valuable will be an option to purchase the stock, other things held constant.

Correct Answer
verified

Correct Answer
verified

Exam 8: Financial Options and Applications in Corporate Finance

Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

Correct AnswerverifiedShow Answer

Because of the time value of money, the longer before an option expires, the less valuable the option will be, other things held constant.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because of the put-call parity relationship, under equilibrium 1. conditions a put option on a stock must sell at exactly the same price as a call option on the stock, provided the strike prices for the put and call are the same.

Correct AnswerverifiedShow Answer

Since investors tend to dislike risk and like certainty, the more volatile a stock, the less valuable will be an option to purchase the stock, other things held constant.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified