Exam 24: Options and Corporate Finance: Extensions and Applications

What are the u, the up state multiplier, and d, the down state multiplier, if there are monthly intervals and the standard deviation is .38?

A financial manager who does not follow the general constraints of the NPV rule may:

The volatility of interest rates affect the value of the project by:

Rejecting an investment today forever may not be a good choice because:

Ima Greedy, the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The volatility of the stock has been about.20 on an annual basis over the last several years. The option mature in 3 years and the risk free rate is 4%. Calculate N(d₁).

The Alger Co. operates a bauxite mine. The mine can produce 800,000 tons a year. The mine is currently closed and will cost $12 million to open it. When should the mine be opened?

Ima Greedy, the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The volatility of the stock has been about.20 on an annual basis over the last several years. The option mature in 3 years and the risk free rate is 4%. What is d₁?

If a project has optionality:

Corporations by rewarding executives with large option positions:

Executives cannot exercise their options for a fixed period of time, this is the:

The call option on a dividend paying stock compared to a non-dividend paying stock is:

Ima Greedy, the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The volatility of the stock has been about.20 on an annual basis over the last several years. The option mature in 3 years and the risk free rate is 4%. What is d₂?

The CEO of NuValue was granted 1,000,000 options. The stock price at the time of the granting of the options was $45 and the options are at the money. The risk free rate was 5% and the options expire in 5 years. The variance on the stock is.04. What is the value of the options contract? If he had negotiated a larger salary and only 10,000 options, what would be the value of the options contract?

The risk-neutral probabilities for an asset, with a current value equal to the present value of future payoffs are:

The NPV approach must be:

Why would the company pay the executive in options as opposed to salary?

Walter Maxim, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about.15 on an annual basis over the last several years. The option mature in 5 years, become exercisable in 3 years, and the risk free rate is 4%. What is the value of Mr. Maxim's options?

The CFO of NuValue was granted 1,000,000 options. The stock price at the time of the granting of the options was $20 and the options are at the money. The risk free rate was 4% and the options expire in 5 years. The variance on the stock is.05. What is the value of her options contract? If she had negotiated a larger salary and only 10,000 options, what would be the value of the options contract?

Walter Maxim, the CEO of Digital Storage Devices has been granted options on 300,000 shares. The stock is currently trading at $27 a share and the options are at the money. The volatility of the stock has been about.15 on an annual basis over the last several years. The option mature in 5 years, become exercisable in 3 years, and the risk free rate is 4%. If Mr. Maxim earned $500,000 in regular annual salary why might why might he prefer to have $1,500,000 in straight salary versus salary and options?

Which of the following is not part of the Black Scholes option pricing model?