Question 1

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

Question 2

The primary purpose of a protective put is to limit the downside risk of asset ownership:

Accepted Answer

A) True 
 B)False

Question 3

Provide a deﬁnition of exercising the option.

Accepted Answer

The act of buying or...

Question 4

The term N(d2)  is:

Accepted Answer

A)   The European put option delta.
B)   The European call option delta.
C)   The probability of a value that is less than or equal to d2, given a standardized normally distributed random variable.
D)   The probability of a value that is greater than or equal to N(d1) , given a standardized normally distributed random variable.
E)   The symbol for the measure of sensitivity of an option's value to a change in the time to expiration.F) A) and B)
G) B) and D)

Question 5

The seller of a put agrees to purchase shares of stock if the option is exercised.

Accepted Answer

A) True 
 B)False

Question 6

In the Black-Scholes option pricing formula, N(d1)  is the probability that a standardized, normally distributed random variable is:

Accepted Answer

A)   Less than or equal to N(d2) .
B)   Less than one.
C)   Equal to one.
D)   Equal to d1.
E)   Less than or equal to d1.F) None of the above
G) All of the above

Question 7

If a call has a positive intrinsic value at expiration the call is said to be:

Accepted Answer

A)   Funded.
B)   Unfunded.
C)   At the money.
D)   In the money.
E)   Out of the money.F) All of the above
G) B) and E)

Question 8

ESOs generally provide a guarantee that the option will be in the money prior to the expiration
date.

Accepted Answer

A) True 
 B)False

Question 9

Warrants can be a source of cash for a ﬁrm.

Accepted Answer

A) True 
 B)False

Question 10

You own four call option contracts on Webster South stock with a strike price of $17.50. When you purchased the shares the option price was $.85 and the stock price was $16.90. What is the
Intrinsic value of your investment if Webster is currently selling for $16.40 a share?

Accepted Answer

A)   -$440
B)   -$240
C)   $0
D)   $240
E)   $440F) A) and E)
G) A) and D)

Question 11

Recently, a Canadian oil ﬁrm wanted to invest in a Russian oil producer. However, the Russian ﬁrm's
stock was not available for purchase. The Russian ﬁrm did have publicly traded convertible bonds
outstanding. Can the Canadian ﬁrm achieve its objective in this case? Would it be ethical for the
Canadian ﬁrm to take this route? What are the implications of convertible bonds for control of a
ﬁrm?

Accepted Answer

The Canadian ﬁrm can buy the convertible...

Question 12

Compare and contrast the advantages of a convertible bond to the issuer and to the purchaser.

Accepted Answer

Convertible bonds provide ﬁrms the oppor...

Question 13

Underlying stock price: 45.80  What is the market value per share of the November 45 put?

Accepted Answer

A)   $1.80
B)   $2.30
C)   $2.80
D)   $4.30
E)   $7.00F) C) and D)
G) A) and D)

Question 14

Several rumors concerning Wyslow, Inc. stock have started circulating. These rumors are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-
Month put and a call option on this stock with an exercise price of $15. You purchased the call at a
Quoted price of $.20 and the put at a price of $2.10. What will be your total proﬁt or loss on these
Option positions if the stock price is $4 on the day the options expire?

Accepted Answer

A)   -$230
B)   $870
C)   $890
D)   $910
E)   $1,310F) A) and D)
G) A) and E)

Question 15

A $1,000 face value 7% convertible bond pays interest semi-annually and has a maturity date of ﬁve years. The conversion price is $40. The market yield on nonconvertible debentures of comparable
Quality is 8%. The market price of the common stock is $38.50 currently. What is the minimum price
At which the convertible bond should sell?

Accepted Answer

A)   $948.26
B)   $959.44
C)   $962.50
D)   $1,000.00
E)   $1,037.50F) C) and E)
G) None of the above

Question 16

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

Question 17

A _____ is a _____ on the assets of a leveraged ﬁrm.

Accepted Answer

A)   bond; naked call option
B)   bond; covered call option
C)   stock; call option
D)   stock; put option
E)   stock; protective putF) C) and E)
G) A) and E)

Question 18

The relationship between the prices of the underlying stock, a call option, a put option, and a
riskless asset is referred to as a protective put.

Accepted Answer

A) True 
 B)False

Question 19

The minimum ﬂoor value of a convertible bond:

Accepted Answer

A)   Is the greater of the bond's face value or the conversion value.
B)   Is always less than the conversion value of the bond.
C)   Is equal to the straight bond value of the security.
D)   Is the greater of the straight bond value or the conversion value.
E)   Is equal to the conversion value of the security.F) None of the above
G) A) and E)

Question 20

Option Delta can best be deﬁned as:

Accepted Answer

A)   The act of buying or selling the underlying asset via the option contract.
B)   The ﬁxed price in the option contract at which the holder can buy or sell the underlying asset. Also the exercise price or strike price.
C)   The last day on which an option can be exercised.
D)   The change in the stock price divided by the change in the call price.
E)   A feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors.F) B) and E)
G) A) and C)

Exam 25: Option Valuation

Provide a deﬁnition of exercising the option.

Correct Answer
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The act of buying or...
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If a call has a positive intrinsic value at expiration the call is said to be:

Correct Answer
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The term N(d2) is:

Correct Answer
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Underlying stock price: 45.80 What is the market value per share of the November 45 put?

Correct Answer
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The minimum ﬂoor value of a convertible bond:

Correct Answer
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You own four call option contracts on Webster South stock with a strike price of $17.50. When you purchased the shares the option price was $.85 and the stock price was $16.90. What is the Intrinsic value of your investment if Webster is currently selling for $16.40 a share?

Correct Answer
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ESOs generally provide a guarantee that the option will be in the money prior to the expiration date.

Correct Answer
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A _ is a _ on the assets of a leveraged ﬁrm.

Correct Answer
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Correct Answer
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Warrants can be a source of cash for a ﬁrm.

Correct Answer
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The buyer of a European put has the:

Correct Answer
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The seller of a put agrees to purchase shares of stock if the option is exercised.

Correct Answer
verified

The primary purpose of a protective put is to limit the downside risk of asset ownership:

Correct Answer
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In the Black-Scholes option pricing formula, N(d1) is the probability that a standardized, normally distributed random variable is:

Correct Answer
verified

Correct Answer
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The Canadian ﬁrm can buy the convertible...
View Answer

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

Correct Answer
verified

Correct Answer
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The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as a protective put.

Correct Answer
verified

Option Delta can best be deﬁned as:

Correct Answer
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Compare and contrast the advantages of a convertible bond to the issuer and to the purchaser.

Correct Answer
verified
Convertible bonds provide ﬁrms the oppor...
View Answer

Exam 25: Option Valuation

Provide a deﬁnition of exercising the option.

Correct AnswerverifiedThe act of buying or...View AnswerShow Answer

If a call has a positive intrinsic value at expiration the call is said to be:

Correct AnswerverifiedShow Answer

The term N(d2) is:

Correct AnswerverifiedShow Answer

Underlying stock price: 45.80 What is the market value per share of the November 45 put?

Correct AnswerverifiedShow Answer

The minimum ﬂoor value of a convertible bond:

Correct AnswerverifiedShow Answer

You own four call option contracts on Webster South stock with a strike price of $17.50. When you purchased the shares the option price was $.85 and the stock price was $16.90. What is the Intrinsic value of your investment if Webster is currently selling for $16.40 a share?

Correct AnswerverifiedShow Answer

ESOs generally provide a guarantee that the option will be in the money prior to the expiration date.

Correct AnswerverifiedShow Answer

A _____ is a _____ on the assets of a leveraged ﬁrm.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Warrants can be a source of cash for a ﬁrm.

Correct AnswerverifiedShow Answer

The buyer of a European put has the:

Correct AnswerverifiedShow Answer

The seller of a put agrees to purchase shares of stock if the option is exercised.

Correct AnswerverifiedShow Answer

The primary purpose of a protective put is to limit the downside risk of asset ownership:

Correct AnswerverifiedShow Answer

In the Black-Scholes option pricing formula, N(d1) is the probability that a standardized, normally distributed random variable is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe Canadian ﬁrm can buy the convertible...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as a protective put.

Correct AnswerverifiedShow Answer

Option Delta can best be deﬁned as:

Correct AnswerverifiedShow Answer

Compare and contrast the advantages of a convertible bond to the issuer and to the purchaser.

Correct AnswerverifiedConvertible bonds provide ﬁrms the oppor...View AnswerShow Answer

Correct Answer
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The act of buying or...
View Answer

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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A _ is a _ on the assets of a leveraged ﬁrm.

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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Correct Answer
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Correct Answer
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The Canadian ﬁrm can buy the convertible...
View Answer

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
verified
Convertible bonds provide ﬁrms the oppor...
View Answer