Exam 21: Option Valuation

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -The Black-Scholes Δ of a one-year,at-the-money call option on Taggart stock is closest to:

Consider the following equation: C = S × N - PV(K)× N In this equation,the term T represents:

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -The Black-Scholes value of a one-year,at-the-money put option on Taggart stock is closest to:

Which of the following statements is FALSE?

Use the information for the question(s)below. The current price of Kinston Corporation stock is $10.In each of the next two years,this stock price can either go up by $3.00 or go down by $2.00.Kinston stock pays no dividends.The one-year risk-free interest rate is 5% and will remain constant. -Using the binomial pricing model,calculate the price of a two-year put option on Kinston stock with a strike price of $9.

Consider the following equation: boption = bS + bB The term bB is:

Use the information for the question(s)below. The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant. -The risk-neutral probability of an up state for KD Industries is closest to:

Use the information for the question(s)below. The current price of Kinston Corporation stock is $10.In each of the next two years,this stock price can either go up by $3.00 or go down by $2.00.Kinston stock pays no dividends.The one-year risk-free interest rate is 5% and will remain constant. -Using risk-neutral probabilities,calculate the price of a two-year put option on Kinston stock with a strike price of $9.

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -Consider a one-year,at-the-money call option on Taggart stock.The effect on the price of this call option due to an increase in the risk-free rate from 4% to 6% is closest to:

Use the information for the question(s)below. The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant. -The risk-neutral probability of a down state for KD Industries is closest to:

Which of the following statements is FALSE?

Use the information for the question(s)below. The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant. -Construct a binomial tree detailing the option information and payoffs for a call option with a $20 strike price that expires in one year.

Use the information for the question(s)below. The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant. -Using risk-neutral probabilities,the calculated price of a one-year call option on KD stock with a strike price of $20 is closest to:

Which of the following is a corporate application of option pricing?

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -Consider a one-year,at-the-money call option on Taggart stock.The effect on the price of this call option due to an increase in the volatility from 25% to 40% is closest to:

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -Assuming the beta on Taggart stock is 0.75,then the beta for a one-year,at-the-money put option on Taggart stock is closest to:

Consider the following equation: C = S × N - PV(K)× N In this equation,the term σ represents:

Use the following information to answer the question(s)below. (Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. ) Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%. -Which of the following is NOT an input required by the Black-Scholes option pricing model?

Which of the following statements is FALSE?