Exam 14: Security Structures and Determining Enterprise Values

For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement.

A warrant is a type of call option.

A call option is the obligation to purchase a specific asset at a pre-determined price.

The Black and Scholes model requires the inflation rate as an input.

The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:

Preferred stock is the equity claim senior to common stock providing preference on dividends but not liquidation proceeds.

Which of the following is not an input to the Black and Scholes model?

An option that can be exercised only at a specific set of dates is called a:

If a call option can be bought for $12 and the stock's market value is $12, it's said to be "at the money".

An option that can be exercised at any time until its expiration is called a:

Convertible debt is debt with the option to exchange it into non-convertible or straight debt.

Which of the following is not a type of option?

The right to sell a specified asset at a specified price up until a specified date is called:

Owning a put option on a stock is the same as selling a call option on that same stock.

An option is a right to buy or sell additional shares of stock.

Which of the following is an example of a put option which is at the money?

A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time.

An option granting the right to sell a stock at $10 when that stock currently has a market price $8 is "in the money."

Entity valuation allows us to answer the question of how much debt a venture needs to issue to achieve a target capital structure D/V).

The enterprise value includes the value of the debt, equity, and warrant pieces of a venture.