Corporation Finance Analysis

Only available on StudyMode
  • Download(s) : 42
  • Published : January 15, 2013
Open Document
Text Preview
Risk Management – Chapters 20-22. Answers to questions Multiple Choice Questions Chapter 20 Understanding Options

1. The following are examples of disguised options for firms: I) acquiring growth opportunities II) ability of the firm to terminate a project when it is no longer profitable III) options that are associated with corporate securities that provide flexibility to change the terms of the issues A. I only B. II only C. I and III only D. I, II, and III 2. The owner of a regular exchange-listed call-option on the stock: A. has the right to buy 100 shares of the underlying stock at the exercise price B. has the right to sell 100 shares of the underlying stock at the exercise price C. has the obligation to buy 100 shares of the underlying stock at the exercise price D. has the obligation to sell 100 shares of the underlying stock at the exercise price 3. Figure-2 depicts the:

A. position diagram for the buyer of a call option B. profit diagram for the buyer of a call option C. position diagram for the buyer of a put option D. profit diagram for the buyer of a put option 4. If the stock makes a dividend payment before the expiration date then the put-call parity is: A. Value of call = value of put + share price - present value (PV) of dividend - PV of exercise price B. Value of call = value of put - share price + PV of dividend - PV of exercise price C. Value of call = value of put + share price + PV of dividend + PV of exercise price D. Value of call = value of put + share price + PV of dividend - PV of exercise price

Chapter 21 Valuing Options 5. An equity option's theoretical delta reflects the sensitivity of its market price to changes in: A. the volatility of the underlying stock price B. the dividends paid to the underlying stockholders C. the underlying stock price D. the time to expiration 6. The important assumptions of the Black-Scholes formula are: I) the price of the underlying asset follows a lognormal random walk. II) investors can...
tracking img