FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 24: Options and Corporate Finance

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

You are considering a project that has been assigned a discount rate of 14 percent.If you start the project today,you will incur an initial cost of $8,500 and will receive cash inflows of $5,550 a year for two years.If you wait one year to start the project,the initial cost will rise to $9,200 and the cash flows will increase to $5,800 a year for two years.What is the value of the option to wait?

A) -$331.40
B) -$194.46
C) $228.51
D) $230.49
E) $334.68

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

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

You sold ten put contracts on Cross Town Bank stock at an option price per share of $0.85.The options have an exercise price of $39 per share.The options were exercised today when the stock price was $34 a share.What is your net profit or loss on this investment assuming that you closed out your positions at a stock price of $34? Ignore transaction costs and taxes.

A) -$4,500
B) -$4,150
C) $1,800
D) $850
E) $3,500

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

Correct Answer

verified

Show Answer

Question 33

Multiple Choice

Review LaterAdd Note

The investment timing decision is the:

Electronic Importers has a pure discount bond with a face value of $25,000 that matures in one year.The risk-free rate of return is 3.8 percent.The assets of the business are expected to be worth either $23,000 or $35,000 in one year.Currently,these assets are worth $27,500.What is the current value of the bond?

Marti owns an option that allows him to purchase ABC stock at $50 a share.The $50 price is referred to as the:

A $20 put option on Wildwood stock expires today.The current price of the stock is $18.50.Which one of the following best describes this option?

Which of the following statements is (are) correct concerning warrants? I.Warrants are similar to put options. II.Warrants are similar to call options. III.When a warrant is exercised,the issuer is not involved in the transaction. IV.When a warrant is exercised,the issuer must issue new shares of stock.

Lucas Enterprises recently opted to open a new retail outlet.If the outlet outperforms the expectations,the manager can opt to increase the store's size.If it underperforms,the manager can opt to close the store.These choices that the manager has been given are called:

The price of Time Squared Corp.stock will be either $80 or $95 at the end of the year.Call options are available with one year to expiration.T-bills currently yield 6 percent and the current price of Time Squared Corp.stock is $85.What is the value of a call option if the exercise price is $75 per share?

The conversion value of a convertible bond is equal to which one of the following?

The assets of Uptown Stores are currently worth $138,000.These assets are expected to be worth either $120,000 or $150,000 one year from now.The company has a pure discount bond outstanding with a $130,000 face value and a maturity date of one year.The risk-free rate is 4.3 percent.What is the value of the equity in this firm?

What is the value of five August $25 call contracts on Dove stock?

Circle Stores stock is priced at $28 a share.A $40 call on this stock has five months until expiration and a call price of $0.15.Why would an investor purchase a call that is so far out of the money?

The price of Dimension,Inc.stock will be either $65 or $87 at the end of the year.Call options are available with one year to expiration.T-bills currently yield 5 percent.Suppose the current price of Dimension stock is $70.What is the value of the call option if the exercise price is $70 per share?

Call options are frequently attached to bonds,making them callable at the option of the issuer.Consider a firm that just issued two sets of bonds: One is callable,has a 7 percent coupon rate,15 years to maturity,and cannot be called during the first three years;the second is noncallable,has a 7 percent coupon rate,15 years to maturity,and is identical to the first bond in every way except for the call option.Suppose the noncallable bonds are sold for $1,000 each.Will the callable bonds sell for more or less than $1,000? Who "purchases" the option in this case and who "sells" it?

What are the basic similarities and basic differences between warrants and call options?

Travis owns both a September $30 call and a September $30 put.If the call finishes at-the-money,then the put will:

Which of the following grants its owner the right to purchase an asset at a stated price? I.American call II.European call III.American put IV.European put

Felicia purchased an option which she can exercise anytime within the next six months.Which type of option did she purchase?

Alicia owns a $1,000 face value bond that can be converted into 20 shares of AB Limited stock.Which one of the following terms refers to these 20 shares?