Finance Exam

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FINAL EXAM

1. The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called ________.
A. book value

2. New-economy companies generally have higher _______ than old-economy companies.
B. P/E multiples

3. Earnings yields tend to _______ when Treasury yields fall.
A. fall

4. A firm that has an ROE of 12% is considering cutting its dividend payout. The stockholders of the firm desire a dividend yield of 4% and a capital gain yield of 9%. Given this information which of the following statement(s) is/are correct?
I. All else equal the firm's growth rate will accelerate after the payout change
II. All else equal the firm's stock price will go up after the
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The stock's required return is 14%. What is the intrinsic value of a share today?

C. $19.24 22. You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a ______ on the investment.
B. $300 loss

23. You sell one Hewlett Packard August 50 call contract and sell one Hewlett Packard August 50 put contract. The call premium is $1.25 and the put premium is $4.50. Your strategy will pay off __________ in August.
B. only if the stock price is between $44.25 and $55.75

24. The current stock price of Alcoa is $70 and the stock does not pay dividends. The instantaneous risk free rate of return is 6%. The instantaneous standard deviation of Alcoa's stock is 40%. A put option on this stock with an exercise price of $75 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk.
C. 69 25. A(n) ______ option can only be exercised on the expiration date.
D. European

26. At contract maturity the value of a call option is ___________ where X equals the option's strike price and ST is the stock price at contract expiration.
A. Max(0, ST - X)

27. An Asian call option gives its holder the right to ____________.
B. buy the underlying asset at a price determined by the average stock price during some specified portion of the option's life

28. A

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