D4) Real options make up a lower proportion of the total value of ”value stocks” than “growth stocks” True False 2.In general, an option is more valuable when it is not available to anyone. True False
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D4)
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Real options make up a lower proportion of the total value of ”value stocks” than “growth stocks”
True
False
2.In general, an option is more valuable when it is not available to anyone.
True
False
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Solved in 3 steps
- Which of the following statement is most accurate in analyzing a stock? If the security has a lower intrinsicvalue than that of the current price_________________a. The stock is good to buyb. Buy more stocks it will definitely go upc. Buy more stocks when price increasesd. The stock is not good to buye. None of the above.2. In the context of binomial option pricing model, a decrease in the stock price volatility will reduce the current option value True or false3) What is called the called the return on a stock beyond what would be predicted from market movements ? A)An abnormal return B) An economic return C) An irrational return D) None of the options are correct. E) All of the options are correct. Please justify your answer.
- Problem 4d: State whether the following statements are true or false. In each case, provide a brief explanation. d. In a binomial world, if a stock is more likely to go up in price than to go down, an increase in volatility would increase the price of a call option and reduce the price of a put option. Note that a static position is a position that is chosen initially and not rebalanced through time.Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct. Group of answer choices Stock A would be a more desirable addition to a portfolio then Stock B. Stock B would be a more desirable addition to a portfolio than A. In equilibrium, the expected return on Stock A will be greater than that on B. In equilibrium, the expected return on Stock B will be greater than that on Stock A. When held in isolation, Stock A has more risk than Stock B.KF1. Which statement is false? a All else being equal, options of the same strike will increase in price depending on the volatility of the underlying. b According to put-call parity, if a stock is trading for a price that is at-the-money, the put and the call should be trading at the same, or very close to, the same price. c A short put option is functionally the same as a long call option (it results in the same thing). d All statements are true e All statements are false
- Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true about these securities? (Assume market equilibrium.) a. Stock B must be a more desirable addition to a portfolio than A. b. Stock A must be a more desirable addition to a portfolio than B. c. The expected return on Stock A should be greater than that on B. d. The expected return on Stock B should be greater than that on A. e. When held in isolation, Stock A has more risk than Stock B.Suppose you are an average risk-averse investor who can purchase only one of the following stocks. Which should you purchased? Explain your reasoning. Investment Expected Return, r Standard Deviation, (r Stock M 6.0% 4.0% Stock N 18.0 12.0 Stock O 12.0 7.0Give typing answer with explanation and conclusion Which of the following statements is INCORRECT? 1. Black-Scholes model assumes that the yield curve is flat. 2. In a “volatility smile”, all options have the same expiration date, but they have different strike prices. 3. Trading shares of the underlying stock will not affect either the gamma or the vega of a portfolio. 4. All are correct
- Thaler describes research that demonstrates that "loser" stocks tend to outperform "winners." This observation is: Question 3 options: A)Consistent with the Efficient Market Hypothesis B)Consistent with the Efficient Market Hypothesis only if loser stocks are more risky than winners. C)Consistent with the Efficient Market Hypothesis only if loser stocks are less risky than winners. D)Never consistent with the Efficient Market HypothesisA4) Critically explain the risk premium of a zero-beta stock. Does this mean you can lower the volatility of a portfolio without changing the expected return by substituting out any zero-beta stock in a portfolio and replacing it with the risk-free asset?Assume you know the expected and required rate of returns of the following stocks. Explainwhich of the following stocks are undervalued, overvalued and fairly valued. Stock Expected rate of return Required rate of return Evaluation X 10 12 ? Y 6 5 ? Z 4 4 ?