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%. -Consider a one-year,at-the-money call option on Taggart stock.The effect on the price of this call option of an increase in the risk-free rate from 4% to 6% is closest to:

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 European put option on Taggart stock with a strike price of $50 is closest to:

Consider the following equation: D = In this equation,the term D,represents

Which of the following statements is false?

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 wither 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 call option on Kinston stock with a strike price of $9.

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. -The risk neutral probability of a down state for KD Industries 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%. -The Black-Scholes value of a one-year call option on Taggart stock with a strike price of $50 is closest to:

Which of the following statements is false?

Consider the following equation: In this equation,the term S 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%. -Assuming the beta on Taggart stock is 0.75,then the beta for a one-year,at-the-money call 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 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 statements is false?

Luther Industries does not pay dividend and is currently trading at $25 per share.The current risk-free rate of interest is 5%.Calculate the price of a call option on Luther Industries with a strike price of $30 that expires in 75 days when N(d₁)= .639 and N(d₂)= .454.

Which of the following is not an input required by the Black-Scholes option pricing model?

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 call option on Taggart stock is closest to: