Exam 13: Risk and the Pricing of Options
Exam 1: Corporate Finance and the Financial Manager93 Questions
Exam 2: Introduction to Financial Statement Analysis122 Questions
Exam 3: The Valuation Principle: the Foundation of Financial Decision Making120 Questions
Exam 4: The Time Value of Money101 Questions
Exam 5: Interest Rates118 Questions
Exam 6: Bonds122 Questions
Exam 7: Valuing Stocks122 Questions
Exam 8: Investment Decision Rules136 Questions
Exam 9: Fundamentals of Capital Budgeting108 Questions
Exam 10: Risk and Return in Capital Markets101 Questions
Exam 11: Systematic Risk and the Equity Risk Premium102 Questions
Exam 12: Determining the Cost of Capital107 Questions
Exam 13: Risk and the Pricing of Options112 Questions
Exam 14: Raising Equity Capital106 Questions
Exam 15: Debt Financing112 Questions
Exam 16: Capital Structure114 Questions
Exam 17: Payout Policy101 Questions
Exam 18: Financial Modelling and Pro Forma Analysis124 Questions
Exam 19: Working Capital Management122 Questions
Exam 20: Short-Term Financial Planning105 Questions
Exam 21: Risk Management111 Questions
Exam 22: International Corporate Finance113 Questions
Exam 23: Leasing88 Questions
Exam 24: Mergers and Acquisitions80 Questions
Exam 25: Corporate Governance53 Questions
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Suppose a stock is currently trading for $12,and in one period it will either increase to $15 or decrease to $8.If the one-period risk-free rate is 4%,what is the price of a European call option that expires in one period and has an exercise price of $7?
(Multiple Choice)
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Consider the following equation: C = P + S - PV(K)- PV(Div)
In this equation,what does the term S represent?
(Multiple Choice)
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A European option on a stock is more valuable than an otherwise similar American option on the same stock.
(True/False)
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How does option pricing theory help explain why equity holders have an incentive to take on negative-NPV,high-volatility investments?
(Essay)
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The price of a European put option on Scotiabank stock with one year to expiry is trading at $2.25,and the price of a European call option is trading at $1.60.If the exercise price of the options is $45,and the risk-free rate is 5%,what must be the current price of Scotiabank stock?
(Multiple Choice)
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The price of a European call option on RBC stock with an exercise price of $85 and one year to expiry is trading at $3.15.The current price of the stock is $81.25,and the risk-free rate is 2.5%.With no arbitrage,what must be the price of a European put on RBC with an exercise price of $85?
(Multiple Choice)
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Use the table for the questions below
Consider the following information on options from the CBOE for Rackspace.
-Assume you want to buy five call option contracts with an exercise price closest to being at-the-money and that expires December 2010.The current price that you would have to pay for such a contract is:




(Multiple Choice)
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Luther Industries is currently trading for $27 per share.The stock pays no dividends.A one-year European put option on Luther with a strike price of $30 is currently trading for $2.60.If the risk-free interest rate is 6% per year,then the price of a one-year European call option on Luther with a strike price of $30 will be closest to:
(Multiple Choice)
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________ options allow the holder to exercise the option on any date up to and including the expiration date.
(Multiple Choice)
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The value of an otherwise identical call option is ________ if the strike price the holder must pay to buy the stock is ________.
(Multiple Choice)
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The price of a European put option on Potash Corp stock with an exercise price of $48 and one year to expiry is trading at $4.15.The current price of the stock is $45,and the risk-free rate is 3%.With no arbitrage,what must be the price of a European call on Potash Corp with an exercise price of $48?
(Multiple Choice)
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How many of the January 2009 call options are in-the-money?
(Multiple Choice)
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The price of a European put option on Power Financial Corp stock with one year to expiry is trading at $0.55,and the price of a European call option is trading at $2.15.If the exercise price of the options is $19,and the risk-free rate is 3.5%,what must be the current price of Power Financial stock?
(Multiple Choice)
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When a company writes a call option on new stock in the company,it is called a:
(Multiple Choice)
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The value of an otherwise identical call option is ________ if the stock price is ________.
(Multiple Choice)
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How many of the January 2009 call options are out-of-the-money?
(Multiple Choice)
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The binomial option pricing model calculates the option price by creating a replicating portfolio out of a risk-free bond and the underlying stock.
(True/False)
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The price of a European put option on Bombardier stock with one year to expiry is trading at $2.25,and the price of a European call option is trading at $1.50.If the stock is currently trading at $4.75,and the risk-free rate is 4%,what is the exercise price of the options?
(Multiple Choice)
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