Filters
Question type
Study Flashcards

Brad purchased an option that he can only exercise on the final day of the option period. Which type of option did he purchase?


A) European
B) American
C) Inflexible
D) Dated
E) Pointed

F) C) and D)
G) B) and E)

Correct Answer

verifed

verified

The investment timing decision refers to the:


A) determination of when an option should be exercised.
B) decision of when to purchase an option on an underlying asset.
C) analysis of determining when an asset should be sold.
D) determination of when a project should be abandoned.
E) evaluation of the optimal time to commence a project.

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

Correct Answer

verifed

verified

The difference between the conversion price and the current stock price, divided by the current stock price, is called the:


A) conversion premium.
B) straight bond value.
C) conversion value.
D) conversion price.
E) conversion ratio.

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

Correct Answer

verifed

verified

Which one of the following describes the lower bound of a call's value?


A) Strike price or zero, whichever is greater
B) Stock price minus the exercise price or zero, whichever is greater
C) Strike price or the stock price, whichever is lower
D) Strike price or zero, whichever is lower
E) Stock price minus the exercise price or zero, whichever is lower

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

Correct Answer

verifed

verified

Which one of the following statements concerning convertible bonds is false?


A) A convertible bond is similar to a bond with a call option.
B) A convertible bond should always be worth less than a comparable straight bond.
C) New shares of stock are issued when a convertible bond is converted.
D) A convertible bond can be redeemed just like a straight bond at maturity.
E) A convertible bond can be described as having upside potential with downside protection.

F) None of the above
G) C) and D)

Correct Answer

verifed

verified

Three weeks ago, you purchased a June $47.50 put option on Hi-Tech Metals stock at an option price of $.60 per share. The market price of the stock three weeks ago was $47.20. Today, the stock is selling at $48.10 a share. What is the intrinsic value of your put contract?


A) −$240
B) $60
C) −$60
D) $0
E) $240

F) D) and E)
G) A) and E)

Correct Answer

verifed

verified

RPC's assets are currently worth $2,700. In one year, they will be worth either $2,000 or $3,500. The risk-free interest rate is 3.5 percent. Suppose the firm has an outstanding debt issue with a face value of $2,500. What is the current value of the firm's debt?


A) $2,377
B) $2,114
C) $2,188
D) $2,263
E) $2,425

F) C) and D)
G) B) and C)

Correct Answer

verifed

verified

Dressler Tech is considering a 3-year project with a discount rate of 15 percent, an initial cost of $95,000, projected sales of 1,300 units on the last day of each year, and a cash flow per unit of $38. The project can be abandoned following the sales on the last day of Year 2 at which time the project's assets could be sold for an estimated $40,000. What is the net present value of this project at Time 0 if the sales forecast for Year 3 of the project is revised such that there is a 50/50 chance that the sales will be either 1,100 or 1,500 units a year?


A) −$13,474
B) −$2,526
C) $19,172
D) $8,192
E) $18,887

F) A) and E)
G) All of the above

Correct Answer

verifed

verified

Valuing the option to wait:


A) can result in a negative option value.
B) assumes the NPV of a project commenced today is negative.
C) is unaffected by a project's discount rate.
D) is dependent upon a wait time of three years or less.
E) requires at least two NPV calculations as of Time 0.

F) None of the above
G) All of the above

Correct Answer

verifed

verified

Which one of the following describes the intrinsic value of a put option?


A) Lesser of the strike price or the stock price
B) Lesser of the stock price minus the exercise price or zero
C) Lesser of the stock price or zero
D) Greater of the strike price minus the stock price or zero
E) Greater of the stock price minus the exercise price or zero

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

Correct Answer

verifed

verified

Which one of the following statements is correct?


A) The value of a call decreases as the price of the underlying stock increases.
B) The value of a call increases as the exercise price decreases.
C) The value of a put increases as the price of the underlying stock increases.
D) The value of a put decreases as the exercise price increases.
E) The intrinsic value of a put must be zero on the expiration date.

F) B) and C)
G) C) and D)

Correct Answer

verifed

verified

Once a project commences, management can select all of the following options except the option to:


A) abandon.
B) suspend.
C) contract.
D) expand.
E) wait.

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

Correct Answer

verifed

verified

The maximum value of a call option can never exceed the:


A) underlying stock price.
B) exercise price plus the stock price.
C) strike price.
D) premium price.
E) intrinsic value.

F) B) and D)
G) A) and D)

Correct Answer

verifed

verified

What is the value of five September $40 call contracts on PTL stock if the option premium quote is $1.35 a share and the stock is selling for $41.30 a share?


A) $25.00
B) $650
C) $6.75
D) $1.35
E) $675

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

Correct Answer

verifed

verified

What is the maximum amount you can lose if you purchase one call option contract on ABC stock that is currently selling for $16 a share?


A) The market price of the stock multiplied by 100
B) The strike price multiplied by 100
C) The strike price per share
D) The option premium per share multiplied by 100
E) The option premium per share

F) A) and D)
G) A) and E)

Correct Answer

verifed

verified

A bond with five detachable warrants has just been offered for sale for $1,000. The bond matures in eight years and has an annual coupon of $60. Each warrant grants its owner the right to purchase two shares of stock in the company at $15 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 6.4 percent. What is the value of one warrant?


A) $2.45
B) $5.67
C) $12.25
D) $24.45
E) $4.89

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

Correct Answer

verifed

verified

You currently own a one-year call option on RCI stock. The current stock price is $51.20 and the risk-free rate of return is 3.36 percent. Your option has a strike price of $50 and you assume the option will finish in the money. What is the current value of your call option?


A) $1.16
B) $1.24
C) $2.83
D) $3.13
E) $2.28

F) C) and E)
G) D) and E)

Correct Answer

verifed

verified

Jeff owns a $1,000 face value bond. He can exchange that bond for 25 shares of KNJ stock at any time within the next two years. What type of bond does Jeff own?


A) Secured
B) Warranted
C) Convertible
D) Junk
E) Callable

F) B) and D)
G) A) and B)

Correct Answer

verifed

verified

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?


A) Funded
B) Unfunded
C) At-the-money
D) In-the-money
E) Out-of-the-money

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

Correct Answer

verifed

verified

Last month, Fun Time introduced a new board game. Consumer demand has been overwhelming and it appears that strong demand will exist over the long term as all ages absolutely love the game. Given this, which one of the following options should the company consider in respect to this game?


A) Suspension
B) Expansion
C) Abandonment
D) Contraction
E) Withdrawal

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

Correct Answer

verifed

verified

Showing 61 - 80 of 102

Related Exams

Exam 1

Introduction to Corporate Finance

63 Questions

Exam 2

Financial Statements, Taxes, and Cash Flow

91 Questions

Exam 3

Working with Financial Statements

104 Questions

Exam 4

Long-Term Financial Planning and Growth

95 Questions

Exam 5

Introduction to Valuation: The Time Value of Money

64 Questions

Exam 6

Discounted Cash Flow Valuation

125 Questions

Exam 7

Interest Rates and Bond Valuation

124 Questions

Exam 8

Stock Valuation

117 Questions

Exam 9

Net Present Value and Other Investment Criteria

108 Questions

Exam 10

Making Capital Investment Decisions

104 Questions

Exam 11

Project Analysis and Evaluation

99 Questions

Exam 12

Some Lessons from Capital Market History

93 Questions

Exam 13

Return, Risk, and the Security Market Line

104 Questions

Exam 14

Cost of Capital

99 Questions

Exam 15

Raising Capital

90 Questions

Exam 16

Financial Leverage and Capital Structure Policy

95 Questions

Exam 17

Dividends and Payout Policy

99 Questions

Exam 18

Short Term Finance and Planning

109 Questions

Exam 19

Cash and Liquidity Management

97 Questions

Exam 20

Credit and Inventory Management

92 Questions

Exam 21

International Corporate Finance

98 Questions

Exam 22

Behavioral Finance: Implications for Financial Management

48 Questions

Exam 23

Enterprise Risk Management

69 Questions

Exam 25

Option Valuation

78 Questions

Exam 26

Mergers and Acquisitions

89 Questions

Exam 27

Leasing

71 Questions

Show Answer