Question 1

Black-Scholes assumes that all options are European,meaning that the option can be exercised only on the date of the option's maturity.

Accepted Answer

A) True 
 B)False

Question 2

Investments that confer multiple options that are built upon one another are called compound options.

Accepted Answer

A) True 
 B)False

Question 3

Cisco Systems is widely known to have a(n) ____ strategy.

Accepted Answer

A)  acquisition-led 
B)  real options-based 
C)  threshold investment 
D)  risk-adjusted

Question 4

Firms that are entrepreneurial tend to have greater strategic flexibility.

Accepted Answer

A) True 
 B)False

Question 5

The first step in calculating a call option's value using the Black-Scholes formula is to calculate the value of the underlying asset and the present value of the exercise price.

Accepted Answer

A) True 
 B)False

Question 6

The key strength of capital budgeting lies in its ability to handle tangible:

Accepted Answer

A)  cash flows. 
B)  investments. 
C)  benefits. 
D)  resource allocation.

Question 7

Real options are important in providing a bridge between:

Accepted Answer

A)  important investment decisions. 
B)  strategic analysis and capital budgeting. 
C)  general tendencies in industries. 
D)  economic profits and discretionary future investments.

Question 8

In real-life situations,it is necessary to use option valuation methods since:

Accepted Answer

A)  the discount rate can be obtained easily. 
B)  the discount rate cannot be obtained easily. 
C)  the discount rate is constant. 
D)  the discount rate is published daily in the Wall Street Journal.

Question 9

The main reason to exercise a financial option early would be to realize a(n):

Accepted Answer

A)  dividend payment. 
B)  fixed exercise price. 
C)  underlying asset. 
D)  distribution.

Question 10

An option provides a firm with the obligation to take some future specified action.

Accepted Answer

A) True 
 B)False

Question 11

Strategic flexibility might be enhanced by organizational structures,systems,or other internal resources that augment the responsiveness of an organization.

Accepted Answer

A) True 
 B)False

Question 12

The five parameters making up the value drivers for options can be reduced to two summary parameters:

Accepted Answer

A)  NPVq and option value. 
B)  NPVq and cumulative volatility. 
C)  cost of exercise and cumulative volatility. 
D)  time of exercise and option value.

Question 13

Having the right,but not the obligation,to purchase shares of a company's stock in the future helps firms reduce downside risk while accessing upside opportunities.

Accepted Answer

A) True 
 B)False

Question 14

An equity joint venture is an example of a growth option.

Accepted Answer

A) True 
 B)False

Question 15

For real options,the current value of the underlying asset is equivalent to the present value of the estimated ____ associated with the underlying asset.

Accepted Answer

A)  capital expenditures 
B)  cash flows 
C)  profits 
D)  exercise price

Question 16

Black-Scholes assumes that all options are European,meaning that the option can be exercised only on the date of the option's maturity.In reality,real options are often more like ____ options,which can be exercised early.

Accepted Answer

A)  South American 
B)  Chinese 
C)  American 
D)  Russian

Question 17

An equity joint venture is an example of a ____ option.

Accepted Answer

A)  switching 
B)  defer 
C)  growth 
D)  compound

Question 18

Suppose an individual investor purchases a financial call and pays $10 per share to obtain the right,but not the obligation,to purchase 25 shares of a company's stock for $100 in the future.If the firm's share price collapses and the individual investor does nothing,he/she has only lost the original option purchase price of $250 ($10 x 25 shares).

Accepted Answer

A) True 
 B)False

Question 19

Options help firms reduce downside risk while accessing:

Accepted Answer

A)  strategic decisions. 
B)  abandonment. 
C)  growth options. 
D)  upside opportunities.

Question 20

In the case of call options,uncertainty relates negatively to an option's value.

Accepted Answer

A) True 
 B)False

Exam 13: Strategic Flexibility and Real Options Analysis

Black-Scholes assumes that all options are European,meaning that the option can be exercised only on the date of the option's maturity.

Investments that confer multiple options that are built upon one another are called compound options.

Cisco Systems is widely known to have a(n) ____ strategy.

Firms that are entrepreneurial tend to have greater strategic flexibility.

The first step in calculating a call option's value using the Black-Scholes formula is to calculate the value of the underlying asset and the present value of the exercise price.

The key strength of capital budgeting lies in its ability to handle tangible:

Real options are important in providing a bridge between:

In real-life situations,it is necessary to use option valuation methods since:

The main reason to exercise a financial option early would be to realize a(n) :

An option provides a firm with the obligation to take some future specified action.

Strategic flexibility might be enhanced by organizational structures,systems,or other internal resources that augment the responsiveness of an organization.

The five parameters making up the value drivers for options can be reduced to two summary parameters:

Having the right,but not the obligation,to purchase shares of a company's stock in the future helps firms reduce downside risk while accessing upside opportunities.

An equity joint venture is an example of a growth option.

For real options,the current value of the underlying asset is equivalent to the present value of the estimated ____ associated with the underlying asset.

Black-Scholes assumes that all options are European,meaning that the option can be exercised only on the date of the option's maturity.In reality,real options are often more like ____ options,which can be exercised early.

An equity joint venture is an example of a ____ option.

Options help firms reduce downside risk while accessing:

In the case of call options,uncertainty relates negatively to an option's value.