Exam 23: Options and Corporate Finance: Extensions and Applications

The executive janitor of NuValue was granted 1,000,000 options. The stock price at the time of the granting of the options was $25 and the options are at the money. The risk free rate was 3% and the options expire in 3 years. The variance on the stock is .04. What is 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:

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -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 variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is d₁?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $23 a share and the options are at the money. The variance of the stock has been about .08 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is d₂?

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -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 variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is the value of a call option?

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

Note: Correct answers to later questions are dependent on correct answers to earlier questions. -Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $23 a share and the options are at the money. The variance of the stock has been about .08 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%. What is e^-rt?

The option to abandon is:

An example of a special option is:

By rewarding executives with large option positions,corporations:

In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?

The most correct method to determine the current value of future payoffs would be to:

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?

Increasing the number of intervals in the binomial model causes the price shift parameters to change. New estimates are related to:

A branching tree for the binomial model:

The value of the options awarded executives is much less than face value to the executives because:

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

The opportunity to defer investing to a later date may have value because:

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

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?