Question 1

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

Accepted Answer

A) more valuable because of the extra dividend payment. 
B) equal in value because cash dividends are paid on stock only. 
C) less valuable because cash dividends are paid on stock only. 
D) less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money. 
E) None of the above. 
A) more valuable because of the extra dividend payment. 
B) equal in value because cash dividends are paid on stock only. 
C) less valuable because cash dividends are paid on stock only. 
D) less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money. 
E) None of the above. C

Question 2

What is e-rt?

Accepted Answer

A) .6087 
B) .7087 
C) .7952 
D) .8476 
E) .8869 
A) .6087 
B) .7087 
C) .7952 
D) .8476 
E) .8869 E

Question 3

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

Accepted Answer

Using Black Scholes option pricing mode,one C = 27(.74668)- 27 e^-.20 (.41992)= $10.88 Total Value = 300,000 ($10.88)= $3,264,000

Question 4

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

Accepted Answer

A) increasing the value as volatility increases. 
B) increasing the value as volatility decreases. 
C) decreasing the value as volatility increases. 
D) interest rate volatility does not affect value. 
E) None of the above. 
A) increasing the value as volatility increases. 
B) increasing the value as volatility decreases. 
C) decreasing the value as volatility increases. 
D) interest rate volatility does not affect value. 
E) None of the above.

Question 5

Calculate N(d1).

Accepted Answer

A) .5089 
B) .6608 
C) .6882 
D) .6879 
E) .8096 
A) .5089 
B) .6608 
C) .6882 
D) .6879 
E) .8096

Question 6

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

Accepted Answer

A) given by the probability of each state occurring. 
B) given by the value of the underlying asset under good news and the risk free rate. 
C) given by the value of the underlying asset under good news and bad news. 
D) given by the value of the underlying asset under good news,bad news,and the risk free rate. 
E) None of the above. 
A) given by the probability of each state occurring. 
B) given by the value of the underlying asset under good news and the risk free rate. 
C) given by the value of the underlying asset under good news and bad news. 
D) given by the value of the underlying asset under good news,bad news,and the risk free rate. 
E) None of the above.

Question 7

Calculate N(d1).

Accepted Answer

A) .5054 
B) .6508 
C) .6882 
D) .7047 
E) .8096 
A) .5054 
B) .6508 
C) .6882 
D) .7047 
E) .8096

Question 8

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

Accepted Answer

A) the value to the executive depends on the stock price being greater than the exercise price. 
B) the options must be held beyond the freeze-out period. 
C) a highly undiversified portfolio can have a large drop in value with high variance stocks. 
D) All of the above. 
E) None of the above. 
A) the value to the executive depends on the stock price being greater than the exercise price. 
B) the options must be held beyond the freeze-out period. 
C) a highly undiversified portfolio can have a large drop in value with high variance stocks. 
D) All of the above. 
E) None of the above.

Question 9

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?

Accepted Answer

d₁ = [.05 + (.50 @#LAT-DLM&.04)(5)]/@#LAT-DLM& d<

Question 10

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

Accepted Answer

A) accept a negative NPV project for fear of losing an investment opportunity. 
B) accept a marginally acceptable NPV project limiting the corporation's ability to choose a competing project. 
C) not consider all options available in a capital budgeting decision. 
D) not take a positive NPV project even if the NPV is adequate reward to forego the option. 
E) All of the above. 
A) accept a negative NPV project for fear of losing an investment opportunity. 
B) accept a marginally acceptable NPV project limiting the corporation's ability to choose a competing project. 
C) not consider all options available in a capital budgeting decision. 
D) not take a positive NPV project even if the NPV is adequate reward to forego the option. 
E) All of the above.

Question 11

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

Accepted Answer

There are several benefits to paying exe

Question 12

Calculate N(d2).

Accepted Answer

A) .5000 
B) .5988 
C) .6164 
D) .7468 
E) .7595 
A) .5000 
B) .5988 
C) .6164 
D) .7468 
E) .7595

Question 13

Calculate N(d2).

Accepted Answer

A) .5130 
B) .5578 
C) .6085 
D) .7085 
E) .7142 
A) .5130 
B) .5578 
C) .6085 
D) .7085 
E) .7142

Question 14

What is e-rt?

Accepted Answer

A) .6087 
B) .7087 
C) .7952 
D) .8476 
E) .8869 
A) .6087 
B) .7087 
C) .7952 
D) .8476 
E) .8869

Question 15

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

Accepted Answer

A) the standard deviation of the underlying asset. 
B) the up state multiplier equals the standard deviation divided by root n. 
C) the number of intervals in a year. 
D) All of the above. 
E) None of the above. 
A) the standard deviation of the underlying asset. 
B) the up state multiplier equals the standard deviation divided by root n. 
C) the number of intervals in a year. 
D) All of the above. 
E) None of the above.

Question 16

The option to abandon is:

Accepted Answer

A) a real option. 
B) usually of little value because of the cost associated with abandonment. 
C) irrelevant in capital budgeting analysis. 
D) nearly always less relevant the option to expand. 
E) All of the above. 
A) a real option. 
B) usually of little value because of the cost associated with abandonment. 
C) irrelevant in capital budgeting analysis. 
D) nearly always less relevant the option to expand. 
E) All of the above.

Question 17

What is d2?

Accepted Answer

A) .0121 
B) .0252 
C) .0326 
D) .0452 
E) .0525 
A) .0121 
B) .0252 
C) .0326 
D) .0452 
E) .0525

Question 18

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?

Accepted Answer

A) 1.1159;.8961 
B) .0317;31.5789 
C) .0317;.9683 
D) .2193;.7807 
E) None of the above 
A) 1.1159;.8961 
B) .0317;31.5789 
C) .0317;.9683 
D) .2193;.7807 
E) None of the above

Question 19

What is d1?

Accepted Answer

A) .1945 
B) .4102 
C) .4593 
D) .4899 
E) .5487 
A) .1945 
B) .4102 
C) .4593 
D) .4899 
E) .5487

Question 20

The NPV approach must be:

Accepted Answer

A) augmented by added analysis if there are a few embedded options. 
B) augmented by added analysis if a decision has significant embedded options. 
C) jettisoned if there are any embedded options. 
D) computed carefully to identify the options. 
E) None of the above. 
A) augmented by added analysis if there are a few embedded options. 
B) augmented by added analysis if a decision has significant embedded options. 
C) jettisoned if there are any embedded options. 
D) computed carefully to identify the options. 
E) None of the above.

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

What is e^-rt?

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

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

Calculate N(d₁).

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

Calculate N(d₁).

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:

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

Calculate N(d₂).

Calculate N(d₂).

What is e^-rt?

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

The option to abandon is:

What is d₂?

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?

What is d₁?

The NPV approach must be:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

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

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters

Exam 23: Options and Corporate Finance: Extensions and Applications

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

What is e-rt?

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

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

Calculate N(d1).

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

Calculate N(d1).

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:

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

Calculate N(d2).

Calculate N(d2).

What is e-rt?

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

The option to abandon is:

What is d2?

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?

What is d1?

The NPV approach must be:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

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

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Warrants and Convertibles

Derivatives and Hedging Risk

International Corporate Finance

Filters

What is e^-rt?

Calculate N(d₁).

Calculate N(d₁).

Calculate N(d₂).

Calculate N(d₂).

What is e^-rt?

What is d₂?

What is d₁?