Question 1

Under European put-call parity,the present value of the strike price is equivalent to:

Accepted Answer

A)  the current value of the stock minus the call premium.
B)  the market value of the stock plus the put premium.
C)  the present value of a government coupon bond with a face value equal to the strike price.
D)  a U.S. Treasury bill with a face value equal to the strike price.
E)  a risk-free security with a face value equal to the strike price and a coupon rate equal to the risk-free rate of return.F) A) and D)
G) C) and E)

Question 2

What is the value of a 6-month call with a strike price of $25 given the Black-Scholes option pricing model and the following information?

Accepted Answer

A)  $0
B)  $0.93
C)  $1.06
D)  $1.85
E)  $2.14F) A) and E)
G) C) and D)

Question 3

Which one of the following can be used to replicate a protective put strategy?

Accepted Answer

A)  riskless investment and stock purchase
B)  stock purchase and call option
C)  call option and riskless investment
D)  riskless investment
E)  call option, stock purchase, and riskless investmentF) A) and E)
G) A) and D)

Question 4

Explain why financial mergers tend to benefit bondholders more than shareholders.

Accepted Answer

Financial mergers tend to lower the risk...

Question 5

For the equity of a firm to be considered a call option on the firm's assets,the firm must:

Accepted Answer

A)  be in default.
B)  be leveraged.
C)  pay dividends.
D)  have a negative cash flow from operations.
E)  have a negative cash flow from assets.F) C) and D)
G) A) and B)

Question 6

Given the following information,what is the value of d2 as it is used in the Black-Scholes option pricing model? 2 as it is used in the Black-Scholes option pricing model?   A) -1.1346 B) -0.8657 C) -0.8241 D) -0.7427 E) -0.7238" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  -1.1346
B)  -0.8657
C)  -0.8241
D)  -0.7427
E)  -0.7238F) D) and E)
G) B) and E)

Question 7

Which of the following affect the value of a call option?
I.strike price
II.time to maturity
III.standard deviation of the returns on a risk-free asset
IV.risk-free rate

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, II, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and E)
G) A) and B)

Question 8

The delta of a call option on a firm's assets is 0.767.This means that a $75,000 project will increase the value of equity by:

Accepted Answer

A)  $38,350.
B)  $45,336.
C)  $57,525.
D)  $64,627.
E)  $65,189.F) C) and E)
G) B) and D)

Question 9

Which of the following statements are correct?
I.As the standard deviation of the returns on a stock increase,the value of a put option increases.
II.The value of a call option decreases as the time to expiration increases.
III.A decrease in the risk-free rate increases the value of a put option.
IV.Increasing the strike price increases the value of a put option.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and II only
D)  I, III, and IV only
E)  I, II, and III onlyF) C) and D)
G) A) and B)

Question 10

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Accepted Answer

A)  residual error
B)  implied mean return
C)  derived case volatility (DCV) 
D)  forecast rho
E)  implied standard deviation (IS
D)  F) C) and E)
G) C) and D)

Question 11

Explain how an increase in T-bill rates will affect the value of an American call and an American put.

Accepted Answer

An increase in the risk-free rate will i...

Question 12

A decrease in which of the following will increase the value of a put option on a stock?
I.time to expiration
II.stock price
III.exercise price
IV.risk-free rate

Accepted Answer

A)  III only
B)  II and IV only
C)  I and III only
D)  I, II, and III only
E)  II, III, and IV onlyF) B) and D)
G) A) and C)

Question 13

Which one of the following statements is correct?

Accepted Answer

A)  Mergers benefit shareholders but not creditors.
B)  Positive NPV projects will automatically benefit both creditors and shareholders.
C)  Shareholders might prefer a negative NPV project over a positive NPV project.
D)  Creditors prefer negative NPV projects while shareholders prefer positive NPV projects.
E)  Mergers rarely affect bondholders.F) None of the above
G) A) and B)

Question 14

Which one of the five factors included in the Black-Scholes model cannot be directly observed?

Accepted Answer

A)  risk-free rate
B)  strike price
C)  standard deviation
D)  stock price
E)  life of the optionF) A) and B)
G) A) and C)

Question 15

What is the value of a 6-month put with a strike price of $27.25 given the Black-Scholes option pricing model and the following information?

Accepted Answer

A)  $4.71
B)  $4.88
C)  $5.24
D)  $5.64
E)  $6.62F) A) and E)
G) A) and B)

Question 16

The sensitivity of an option's value to a change in the risk-free rate is measured by which one of the following?

Accepted Answer

A)  theta.
B)  vega.
C)  rho.
D)  delta.
E)  gamma.F) B) and E)
G) All of the above

Question 17

Which of the following statements are correct?
I.Increasing the time to maturity may not increase the value of a European put.
II.Vega measures the sensitivity of an option's value to the passage of time.
III.Call options tend to be more sensitive to the passage of time than are put options.
IV.An increase in time decreases the value of a call option.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  II, III, and IV only
D)  I, III, and IV only
E)  I, II, III, and IVF) A) and B)
G) C) and D)

Question 18

Which one of the following statements related to the implied standard deviation (ISD) is correct?

Accepted Answer

A)  The ISD is an estimate of the historical standard deviation of the underlying security.
B)  ISD is equal to (1 - D1) .
C)  The ISD estimates the volatility of an option's price over the option's lifespan.
D)  The value of ISD is dependent upon both the risk-free rate and the time to option expiration.
E)  ISD confirms the observable volatility of the return on the underlying security.F) A) and D)
G) C) and E)

Question 19

The Black-Scholes option pricing model can be used for:

Accepted Answer

A)  American options but not European options.
B)  European options but not American options.
C)  call options but not put options.
D)  put options but not call options.
E)  both zero coupon bonds and coupon bonds.F) A) and D)
G) A) and C)

Exam 25: Option Valuation

What is the value of a 6-month put with a strike price of $27.25 given the Black-Scholes option pricing model and the following information?

Correct Answer
verified

Explain how an increase in T-bill rates will affect the value of an American call and an American put.

Correct Answer
verified
An increase in the risk-free rate will i...
View Answer

Which one of the following statements related to the implied standard deviation (ISD) is correct?

Correct Answer
verified

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Correct Answer
verified

What is the value of a 6-month call with a strike price of $25 given the Black-Scholes option pricing model and the following information?

Correct Answer
verified

The sensitivity of an option's value to a change in the risk-free rate is measured by which one of the following?

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
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Given the following information,what is the value of d₂ as it is used in the Black-Scholes option pricing model?

Correct Answer
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Which of the following affect the value of a call option? I.strike price II.time to maturity III.standard deviation of the returns on a risk-free asset IV.risk-free rate

Correct Answer
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For the equity of a firm to be considered a call option on the firm's assets,the firm must:

Correct Answer
verified

Correct Answer
verified

Explain why financial mergers tend to benefit bondholders more than shareholders.

Correct Answer
verified
Financial mergers tend to lower the risk...
View Answer

The delta of a call option on a firm's assets is 0.767.This means that a $75,000 project will increase the value of equity by:

Correct Answer
verified

Which one of the five factors included in the Black-Scholes model cannot be directly observed?

Correct Answer
verified

Correct Answer
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A decrease in which of the following will increase the value of a put option on a stock? I.time to expiration II.stock price III.exercise price IV.risk-free rate

Correct Answer
verified

The Black-Scholes option pricing model can be used for:

Correct Answer
verified

Which one of the following can be used to replicate a protective put strategy?

Correct Answer
verified

Under European put-call parity,the present value of the strike price is equivalent to:

Correct Answer
verified

Exam 25: Option Valuation

What is the value of a 6-month put with a strike price of $27.25 given the Black-Scholes option pricing model and the following information?

Correct AnswerverifiedShow Answer

Explain how an increase in T-bill rates will affect the value of an American call and an American put.

Correct AnswerverifiedAn increase in the risk-free rate will i...View AnswerShow Answer

Which one of the following statements related to the implied standard deviation (ISD) is correct?

Correct AnswerverifiedShow Answer

The implied volatility of the returns on the underlying asset that is computed using the Black-Scholes option pricing model is referred to as which one of the following?

Correct AnswerverifiedShow Answer

What is the value of a 6-month call with a strike price of $25 given the Black-Scholes option pricing model and the following information?

Correct AnswerverifiedShow Answer

The sensitivity of an option's value to a change in the risk-free rate is measured by which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Given the following information,what is the value of d2 as it is used in the Black-Scholes option pricing model?

Correct AnswerverifiedShow Answer

Which of the following affect the value of a call option? I.strike price II.time to maturity III.standard deviation of the returns on a risk-free asset IV.risk-free rate

Correct AnswerverifiedShow Answer

For the equity of a firm to be considered a call option on the firm's assets,the firm must:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain why financial mergers tend to benefit bondholders more than shareholders.

Correct AnswerverifiedFinancial mergers tend to lower the risk...View AnswerShow Answer

The delta of a call option on a firm's assets is 0.767.This means that a $75,000 project will increase the value of equity by:

Correct AnswerverifiedShow Answer

Which one of the five factors included in the Black-Scholes model cannot be directly observed?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in which of the following will increase the value of a put option on a stock? I.time to expiration II.stock price III.exercise price IV.risk-free rate

Correct AnswerverifiedShow Answer

The Black-Scholes option pricing model can be used for:

Correct AnswerverifiedShow Answer

Which one of the following can be used to replicate a protective put strategy?

Correct AnswerverifiedShow Answer

Under European put-call parity,the present value of the strike price is equivalent to:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
An increase in the risk-free rate will i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Given the following information,what is the value of d₂ as it is used in the Black-Scholes option pricing model?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Financial mergers tend to lower the risk...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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