Question 1

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

Accepted Answer

A) the size of the firm will decline. 
B) there are always errors in the estimation of NPVs. 
C) the option value is negative. 
D) the company's foregoing the future rights or option to the investment. 
E) None of the above. 
A) the size of the firm will decline. 
B) there are always errors in the estimation of NPVs. 
C) the option value is negative. 
D) the company's foregoing the future rights or option to the investment. 
E) None of the above.

Question 2

Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?

Accepted Answer

Straight NPV analysis is flawed in that

Question 3

What is d2?

Accepted Answer

A) 0 
B) .0293 
C) .0386 
D) .0478 
E) .0565 
A) 0 
B) .0293 
C) .0386 
D) .0478 
E) .0565

Question 4

Options are granted to top corporate executives because:

Accepted Answer

A) executives will make better business decisions in line with benefiting the shareholders. 
B) executive pay is at risk and linked to firm performance. 
C) options are tax-efficient and taxed only when they are exercised. 
D) All of the above. 
E) None of the above. 
A) executives will make better business decisions in line with benefiting the shareholders. 
B) executive pay is at risk and linked to firm performance. 
C) options are tax-efficient and taxed only when they are exercised. 
D) All of the above. 
E) None of the above.

Question 5

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

Accepted Answer

A) Standard deviation 
B) Time to maturity 
C) Exercise price 
D) Par value of the company's stock 
E) Interest rate 
A) Standard deviation 
B) Time to maturity 
C) Exercise price 
D) Par value of the company's stock 
E) Interest rate

Question 6

If real options were not included in calculations of value,would the valuation be under or over-valued and why?

Accepted Answer

An option is the right,but not the requi

Question 7

By rewarding executives with large option positions,corporations:

Accepted Answer

A) cause the executives to hold highly undiversified portfolios. 
B) put the firm in a risky position to pay off the options. 
C) cause the value of the stock to fall because the options are theft. 
D) are really valueless because most options are never exercised. 
E) None of the above. 
A) cause the executives to hold highly undiversified portfolios. 
B) put the firm in a risky position to pay off the options. 
C) cause the value of the stock to fall because the options are theft. 
D) are really valueless because most options are never exercised. 
E) None of the above.

Question 8

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

Accepted Answer

d₁ = [.03 + (.50 @#LAT-DLM&.04)(3)]/@#LAT-DLM& d<

Question 9

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?

Accepted Answer

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

Question 10

In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?

Accepted Answer

The binomial option pricing model is ame

Question 11

What is the value of a call option?

Accepted Answer

A) $4.14 
B) $4.86 
C) $5.13 
D) $5.62 
E) $6.16 
A) $4.14 
B) $4.86 
C) $5.13 
D) $5.62 
E) $6.16

Question 12

Which of the following statements is true?

Accepted Answer

A) The Black Scholes model is the simplest to use and best used for complex situations. 
B) The binomial model does not handle options with dividend payments prior to expiration date. 
C) The Black Scholes model adequately handles the valuation of an American put. 
D) The binomial model is better for complex situations and is the simplest tool to use. 
E) The Black Scholes model is simpler to use,but for complex situations,the binomial model is the necessary tool. 
A) The Black Scholes model is the simplest to use and best used for complex situations. 
B) The binomial model does not handle options with dividend payments prior to expiration date. 
C) The Black Scholes model adequately handles the valuation of an American put. 
D) The binomial model is better for complex situations and is the simplest tool to use. 
E) The Black Scholes model is simpler to use,but for complex situations,the binomial model is the necessary tool.

Question 13

What is the value of a call option?

Accepted Answer

A) $4.14 
B) $4.86 
C) $5.13 
D) $5.62 
E) $6.16 
A) $4.14 
B) $4.86 
C) $5.13 
D) $5.62 
E) $6.16

Question 14

What is d1?

Accepted Answer

A) .1842 
B) .4102 
C) .4583 
D) .4909 
E) .5412 
A) .1842 
B) .4102 
C) .4583 
D) .4909 
E) .5412

Question 15

Executives cannot exercise their options for a fixed period of time.This is the:

Accepted Answer

A) investing period. 
B) freeze-out period. 
C) valuation period. 
D) guaranteed growth period. 
E) strike period. 
A) investing period. 
B) freeze-out period. 
C) valuation period. 
D) guaranteed growth period. 
E) strike period.

Question 16

The most correct method to determine the current value of future payoffs would be to:

Accepted Answer

A) take the discounted expected value at the risk-free rate. 
B) take the expected value using the probabilities. 
C) take the discounted expected value using the risk-neutral probabilities and the risk free rate. 
D) sum the payoffs discounted at the risk free rate. 
E) None of the above. 
A) take the discounted expected value at the risk-free rate. 
B) take the expected value using the probabilities. 
C) take the discounted expected value using the risk-neutral probabilities and the risk free rate. 
D) sum the payoffs discounted at the risk free rate. 
E) None of the above.

Question 17

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

Accepted Answer

A) the cost of capital may decline in the near future. 
B) certainty may be reduced in the future. 
C) investment costs fluctuate in time. 
D) All of the above. 
E) None of the above. 
A) the cost of capital may decline in the near future. 
B) certainty may be reduced in the future. 
C) investment costs fluctuate in time. 
D) All of the above. 
E) None of the above.

Question 18

An example of a special option is:

Accepted Answer

A) an executive stock option. 
B) the embedded option in a start-up company. 
C) the option in simple business contracts. 
D) the option to shut down and reopen a project. 
E) All of the above. 
A) an executive stock option. 
B) the embedded option in a start-up company. 
C) the option in simple business contracts. 
D) the option to shut down and reopen a project. 
E) All of the above.

Question 19

If a project has optionality:

Accepted Answer

A) the shorter the available life of the project the less valuable the project is. 
B) the longer the available life of the project the less valuable the project is. 
C) the shorter the available life of the project the more valuable the project is. 
D) available project life does not change optionality. 
E) None of the above. 
A) the shorter the available life of the project the less valuable the project is. 
B) the longer the available life of the project the less valuable the project is. 
C) the shorter the available life of the project the more valuable the project is. 
D) available project life does not change optionality. 
E) None of the above.

Question 20

If Mr.Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options?

Accepted Answer

Mr.Maxim likely has a large portion of h

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

Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?

What is d₂?

Options are granted to top corporate executives because:

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

If real options were not included in calculations of value,would the valuation be under or over-valued and why?

By rewarding executives with large option positions,corporations:

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

In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?

What is the value of a call option?

Which of the following statements is true?

What is the value of a call option?

What is d₁?

Executives cannot exercise their options for a fixed period of time.This is the:

The most correct method to determine the current value of future payoffs would be to:

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

An example of a special option is:

If a project has optionality:

If Mr.Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options?

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

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

Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?

What is d2?

Options are granted to top corporate executives because:

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

If real options were not included in calculations of value,would the valuation be under or over-valued and why?

By rewarding executives with large option positions,corporations:

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

In what instances is the binomial option pricing model superior to the Black Scholes option pricing model?

What is the value of a call option?

Which of the following statements is true?

What is the value of a call option?

What is d1?

Executives cannot exercise their options for a fixed period of time.This is the:

The most correct method to determine the current value of future payoffs would be to:

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

An example of a special option is:

If a project has optionality:

If Mr.Maxim earned $500,000 in regular annual salary why might he prefer to have $1,500,000 in straight salary versus salary and options?

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 d₂?

What is d₁?