Question 1

Which one of the following statements concerning warrants is correct?

Accepted Answer

A)   Warrants are similar to put options.
B)   Warrants generally have very short maturity periods.
C)   Owning a warrant is the same as selling a call option.
D)   When a warrant is exercised, the number of outstanding shares increases.
E)   Shares are transferred from one shareholder to another when a warrant is exercised.F) B) and C)
G) C) and D)

Question 2

Rosa purchased three call option contracts on ABC stock with a strike price of $27.50 when the option was quoted at $1.10 per share. The option expires today when the value of ABC stock is $29.30. Ignoring trading costs and taxes, what is the net profit on this investment?

Accepted Answer

A)   $0
B)   $210
C)   $330
D)   $140
E)   $70F) B) and E)
G) None of the above

Question 3

A convertible bond has a face value of $5,000, a conversion price of $40, a coupon rate of 6 percent, semi-annual payments, and a maturity of 12 years. Similar bonds are currently yielding 7.5 percent. The current price of the related stock is $38 per share. What is the conversion value of this bond?

Accepted Answer

A)   $5,600
B)   $5,000
C)   $4,750
D)   $4,930
E)   $5,300F) B) and E)
G) D) and E)

Question 4

Currently, T-bills yield 3.8 percent and MTM stock sells for $38 a share. There is no possibility that the stock will be worth less than $36 per share in one year. What is the value of a call option on this stock if the exercise price is $35 per share?

Accepted Answer

A)   $.32
B)   $3.45
C)   $2.89
D)   $4.28
E)   $.96F) A) and B)
G) A) and C)

Question 5

Which term applies to the final day on which an option can be exercised?

Accepted Answer

A)   Payment date
B)   Ex-option date
C)   Opening date
D)   Expiration date
E)   Intrinsic dateF) B) and E)
G) B) and D)

Question 6

A convertible bond has a face value of $1,000, a market value of $987 and can be converted into 24 shares of stock. What is the conversion price?

Accepted Answer

A)   $41.67
B)   $44.63
C)   $41.43
D)   $41.13
E)   $44.33F) D) and E)
G) All of the above

Question 7

The assets of Uptown Stores are currently worth $346,000. These assets are expected to be worth either $320,000 or $365,000 one year from now. The company has a pure discount bond outstanding with a $350,000 face value and a maturity date of one year. The risk-free rate is 3.9 percent. What is the value of the equity in this firm?

Accepted Answer

A)   $9,915
B)   $12,671
C)   $9,507
D)   $11,347
E)   $10,015F) A) and D)
G) B) and D)

Question 8

Which one of the following terms applies to an option that has an office building as its underlying asset?

Accepted Answer

A)   Financial option
B)   Implicit option
C)   Fixed option
D)   Real option
E)   Concrete optionF) C) and D)
G) B) and D)

Question 9

The dollar amount of a bond's par value that is exchangeable for one share of stock is called the:

Accepted Answer

A)   conversion premium.
B)   par value.
C)   conversion value.
D)   conversion price.
E)   conversion ratio.F) A) and B)
G) A) and C)

Question 10

Which one of the following will decrease the value of an American call option?

Accepted Answer

A)   A decrease in the value of the underlying security
B)   An increase in the risk-free rate
C)   A decrease in the exercise price
D)   An increase in the price volatility of the underlying asset
E)   An increase in the time to expirationF) A) and C)
G) A) and E)

Question 11

Which one of the following will decrease the value of an American call option?

Accepted Answer

A)   A decrease in the price volatility of the underlying asset
B)   An increase in time to expiration
C)   An increase in the underlying stock price
D)   A decrease in the exercise price
E)   An increase in the risk-free rate of returnF) B) and D)
G) B) and C)

Question 12

Warrants are:

Accepted Answer

A)   generally issued as an attachment to publicly issued bonds.
B)   excluded from trading on an organized exchange.
C)   structured as long-term put options.
D)   issued by individual investors.
E)   often added as an incentive to a private debt issue.F) B) and E)
G) All of the above

Question 13

Jack and Jill are house hunting and find a house (House A)  they really like but want to continue searching the market for one more week before making the final decision to buy House A. To avoid having someone else purchase House A while they continue their house hunting, they decide to place a $2,500 deposit on House A. This deposit will apply to the purchase price if they buy House A. If they do not buy House A, they will forfeit the $2,500. Essentially, Jack and Jill have a ________ on House A.

Accepted Answer

A)   financial put option
B)   financial call option
C)   warrant
D)   real put option
E)   real call optionF) C) and D)
G) A) and B)

Question 14

Kurt owns a convertible bond that matures in 16 years. The bond has a coupon rate of 6 percent paid semi-annually, a face value of $1,000 and a conversion price of $25. Similar bonds have a current market return of 5.85 percent. The current price of the related stock is $26.50 per share. What is the straight bond value?

Accepted Answer

A)   $1,060.00
B)   $1,015.45
C)   $972.80
D)   $980.78
E)   $1,030.00F) None of the above
G) All of the above

Question 15

Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $215,000. The shareholders in this firm basically own a ________ option on the assets of the firm with a strike price of ________.

Accepted Answer

A)   put; $180,000
B)   put; $265,000
C)   warrant; $265,000
D)   call; $180,000
E)   call; $265,000F) B) and D)
G) C) and E)

Question 16

Julie opted to exercise her August option on June 20th and as a result received $2,500 for the sale of her shares. Which one of the following did Julie own?

Accepted Answer

A)   Warrant
B)   American call
C)   American put
D)   European call
E)   European putF) A) and B)
G) A) and C)

Question 17

The common stock of Hazelton Refiners is selling for $56.10 a share. U.S. Treasury bills are currently yielding 3.4 percent. What is the current value of a one-year call option on this stock if the exercise price is $55 and you assume the option will finish in the money?

Accepted Answer

A)   $0
B)   $3.74
C)   $2.57
D)   $3.18
E)   $2.91F) A) and B)
G) C) and D)

Question 18

Vince sold two $45 call option contracts at a quoted price of $1.15 per share. What is the net profit on this investment if the price of the underlying asset is $48.10 on the option expiration date? Ignore trading costs and taxes.

Accepted Answer

A)   −$390
B)   −$195
C)   $0
D)   $115
E)   $230F) A) and D)
G) All of the above

Question 19

Electronic Importers has a pure discount bond with a face value of $30,000 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 $29,000 or $35,000 in one year. Currently, these assets are worth $28,600. What is the current value of the bond?

Accepted Answer

A)   $28,146
B)   $29,207
C)   $28,222
D)   $29,547
E)   $28,049F) A) and B)
G) A) and E)

Question 20

The owner of an American put option has the ________ an asset at a fixed price during a stated period of time.

Accepted Answer

A)   right to sell
B)   right to buy
C)   obligation to sell
D)   obligation to buy
E)   obligation to tradeF) A) and D)
G) A) and E)

Exam 24: Options and Corporate Finance

Which one of the following will decrease the value of an American call option?

Correct Answer
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The owner of an American put option has the ________ an asset at a fixed price during a stated period of time.

Correct Answer
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Correct Answer
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Vince sold two $45 call option contracts at a quoted price of $1.15 per share. What is the net profit on this investment if the price of the underlying asset is $48.10 on the option expiration date? Ignore trading costs and taxes.

Correct Answer
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Julie opted to exercise her August option on June 20th and as a result received $2,500 for the sale of her shares. Which one of the following did Julie own?

Correct Answer
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Correct Answer
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Correct Answer
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A convertible bond has a face value of $1,000, a market value of $987 and can be converted into 24 shares of stock. What is the conversion price?

Correct Answer
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The dollar amount of a bond's par value that is exchangeable for one share of stock is called the:

Correct Answer
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Correct Answer
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Which one of the following will decrease the value of an American call option?

Correct Answer
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Rosa purchased three call option contracts on ABC stock with a strike price of $27.50 when the option was quoted at $1.10 per share. The option expires today when the value of ABC stock is $29.30. Ignoring trading costs and taxes, what is the net profit on this investment?

Correct Answer
verified

Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $215,000. The shareholders in this firm basically own a option on the assets of the firm with a strike price of .

Correct Answer
verified

Warrants are:

Correct Answer
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Correct Answer
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Which term applies to the final day on which an option can be exercised?

Correct Answer
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The common stock of Hazelton Refiners is selling for $56.10 a share. U.S. Treasury bills are currently yielding 3.4 percent. What is the current value of a one-year call option on this stock if the exercise price is $55 and you assume the option will finish in the money?

Correct Answer
verified

Which one of the following terms applies to an option that has an office building as its underlying asset?

Correct Answer
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Which one of the following statements concerning warrants is correct?

Correct Answer
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Currently, T-bills yield 3.8 percent and MTM stock sells for $38 a share. There is no possibility that the stock will be worth less than $36 per share in one year. What is the value of a call option on this stock if the exercise price is $35 per share?

Correct Answer
verified

Exam 24: Options and Corporate Finance

Which one of the following will decrease the value of an American call option?

Correct AnswerverifiedShow Answer

The owner of an American put option has the ________ an asset at a fixed price during a stated period of time.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Vince sold two $45 call option contracts at a quoted price of $1.15 per share. What is the net profit on this investment if the price of the underlying asset is $48.10 on the option expiration date? Ignore trading costs and taxes.

Correct AnswerverifiedShow Answer

Julie opted to exercise her August option on June 20th and as a result received $2,500 for the sale of her shares. Which one of the following did Julie own?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A convertible bond has a face value of $1,000, a market value of $987 and can be converted into 24 shares of stock. What is the conversion price?

Correct AnswerverifiedShow Answer

The dollar amount of a bond's par value that is exchangeable for one share of stock is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following will decrease the value of an American call option?

Correct AnswerverifiedShow Answer

Rosa purchased three call option contracts on ABC stock with a strike price of $27.50 when the option was quoted at $1.10 per share. The option expires today when the value of ABC stock is $29.30. Ignoring trading costs and taxes, what is the net profit on this investment?

Correct AnswerverifiedShow Answer

Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $215,000. The shareholders in this firm basically own a ________ option on the assets of the firm with a strike price of ________.

Correct AnswerverifiedShow Answer

Warrants are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which term applies to the final day on which an option can be exercised?

Correct AnswerverifiedShow Answer

The common stock of Hazelton Refiners is selling for $56.10 a share. U.S. Treasury bills are currently yielding 3.4 percent. What is the current value of a one-year call option on this stock if the exercise price is $55 and you assume the option will finish in the money?

Correct AnswerverifiedShow Answer

Which one of the following terms applies to an option that has an office building as its underlying asset?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning warrants is correct?

Correct AnswerverifiedShow Answer

Currently, T-bills yield 3.8 percent and MTM stock sells for $38 a share. There is no possibility that the stock will be worth less than $36 per share in one year. What is the value of a call option on this stock if the exercise price is $35 per share?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $215,000. The shareholders in this firm basically own a option on the assets of the firm with a strike price of .

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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Correct Answer
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Correct Answer
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