Essay Fin 534

1739 WordsSep 20, 20127 Pages
Question 1 Call options on XYZ Corporation’s common stock trade in the market. Which of the following statements is most correct, holding other things constant? Answer Correct Answer: The price of these call options is likely to rise if XYZ’s stock price rises. Question 2 Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the Correct Answer: All of the above. Question 3 Which of the following statements is CORRECT? Correct Answer: If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an…show more content…
Correct Answer: An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. Question 15 Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be? Correct Answer: $1,989.75 Question 16 Which of the following statements is CORRECT? Correct Answer: Beta measures market risk, which is, theoretically, the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. This is true even if not all of the firm’s stockholders are well diversified. Question 17 Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation and is seeking to maximize shareholder wealth. Correct Answer: Project A has a standard deviation of expected returns of 20%, while Project B’s standard deviation is only 10%. A’s returns are negatively correlated with both the firm’s other assets and the returns on most stocks in the
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