Exam 23: 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?

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Question 1

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The NPV approach must be:

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Question 2

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The executive janitor of NuValue was granted 1,000,000 options.The equity 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 equity is .04.What is the value of the options contract?

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Question 3

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d₁ = [.03 + (.50x.04)(3)]/ $\surd$ (.04)3 d₁ = .15/.3464 = .433 d₂= d₁ - $\surd$ $\sigma$ ²t =.433- $\surd$ (.04)3 =.433 - .3464 = .0866 N(d₁)= .50 +.1686= .6686 N(d₂)= .50 +.0353 = .5353 e^-.03(3) = .9139 C = £25 (.6686)- £25(.5353)(.9139) = £16.715-£12.23629 =£4.48 per share The value of the options contract for 1,000,000 options is 1,000,000(£4.48)= £4,480,000

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

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Question 4

Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares.The equity is currently trading at £22 a share and the options are at the money.The volatility of the equity 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?

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Question 5

Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares.The equity is currently trading at £22 a share and the options are at the money.The volatility of the equity 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?

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Question 6

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

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Question 7

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

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Question 8

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

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Question 9

An example of a special option is:

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Question 10

Which of the following statements is true?

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Question 11

Walter Maxim,the CEO of Digital Storage Devices has been granted options on 300,000 shares.The equity is currently trading at £27 a share and the options are at the money.The volatility of the equity 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?

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Question 12

The CFO of NuValue was granted 1,000,000 options.The equity 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 equity 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?

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Question 13

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

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Question 14

Walter Maxim,the CEO of Digital Storage Devices has been granted options on 300,000 shares.The equity is currently trading at £27 a share and the options are at the money.The volatility of the equity 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?

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Question 15

Ima Greedy,the CFO of Financial Saving Techniques has been granted options on 200,000 shares.The equity is currently trading at £22 a share and the options are at the money.The volatility of the equity 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(d₂).

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Question 16

A firm in the extraction industry whose major assets are cash,equipment and a closed facility may appear to have extraordinary value.This value can be primarily attributed to:

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Question 17

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

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Question 18

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

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Question 19

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

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Question 20

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Exam 23: 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?

The NPV approach must be:

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

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

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

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

An example of a special option is:

Which of the following statements is true?

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

A firm in the extraction industry whose major assets are cash,equipment and a closed facility may appear to have extraordinary value.This value can be primarily attributed to:

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

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

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

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis and Long-Term Planning

Discounted Cash Flow Valuation

How to Value Bonds and Shares

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Factor Models and the Arbitrage Pricing Theory

Risk, cost of Capital, and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: An Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividend and Other Payouts

Equity Financing

Debt Financing

Leasing and Off-Balance-Sheet Financing

Options and Corporate Finance

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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