A) 0.5688 B) 0.5278 C) 0.6085 D) 0.7085 E) 0.7142 A) 0.5688 B) 0.5278 C) 0.6085 D) 0.7085 E) 0.7142 A

A) .1842 B) .4102 C) .4583 D) 0.5196 E) .5412 A) .1842 B) .4102 C) .4583 D) 0.5196 E) .5412

A) 0.5054 B) 0.6508 C) 0.6983 D) 0.7047 E) 0.8096 A) 0.5054 B) 0.6508 C) 0.6983 D) 0.7047 E) 0.8096

A) 0.0121 B) 0.0252 C) 0.1732 D) 0.0452 E) 0.0525 A) 0.0121 B) 0.0252 C) 0.1732 D) 0.0452 E) 0.0525

Exam 24: Options and Corporate Finance: Extensions and Applications

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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?

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Question 1

Correct Answer:

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d1 = [.05 + (.50 ×.04)(5)]/√(.04)5
d1 = .35/.4472 = .7826
d2 =d1 - √σ2t
= .7826 - √(.04)(5)
= .7826 - .4472 = .3354
N(d1)= .50 + .2841 = .7841
N(d2)= .50 + .1314 = .6314
e-.05(5)= .7788
C = $45 (.7841)- $45(.7788)(.6314)
= $35.2845 - $22.128
= $13.16 per share
The value of the options contract for 1,000,000 options is
1,000,000($13.16)= $13,160,000
The value of the options contract for 10,000 options is
10,000($13.16)= $131,600

Calculate N(d₂).

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Question 2

Correct Answer:

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Corporations by rewarding executives with large option positions:

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Question 3

Correct Answer:

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

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Question 4

What is the value of Mr.Maxim's options?

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Question 5

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

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Question 6

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

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Question 7

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 8

What is d₁?

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Question 9

The Nu-Tech Company has a new project available to it at a cost of $6 million.The project that they can sell 13,000 personal organizers at $172 in net cash flow for each of the next five years.Nu-Tech's discount rate is 15%.What is the NPV of the investment? The executives of Nu-Tech are concerned about the potential of future competition and a subsequent drop in sales and price.If after two year you can dispose of the asset for 1.0 million at what price would it make sense to abandon the project?

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Question 10

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

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Question 11

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 12

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?

(Multiple Choice)

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Question 13

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

(Multiple Choice)

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Question 14

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?

(Essay)

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Question 15

Calculate N(d₁).

(Multiple Choice)

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Question 16

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

(Multiple Choice)

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Question 17

If a project has optionality:

(Multiple Choice)

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Question 18

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

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Question 19

What is d₂?

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Question 20

Showing 1 - 20 of 24

Exam 24: Options and Corporate Finance: Extensions and Applications

Calculate N(d2).

Corporations by rewarding executives with large option positions:

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

What is the value of Mr.Maxim's options?

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

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

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?

What is d1?

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

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 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?

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

Calculate N(d1).

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

If a project has optionality:

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

What is d2?

Introduction to Corporate Finance

Accounting Statements and Cash Flow

Financial Planning and Growth

Financial Markets and Net Present Value: First Principles of Finance

The Time Value of Money

How to Value Bonds and Stocks

Net Present Value and Other Investment Rules

Net Present Value and Capital Budgeting

Risk Analysis,real Options,and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk,return,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

Dividends and Other Payouts

Issuing Equity Securities to the Public

Long-Term Debt

Leasing

Options and Corporate Finance: Basic Concepts

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters

Calculate N(d₂).

What is d₁?

Calculate N(d₁).

What is d₂?