Question 1

The common stock of Winsson,Inc.is currently priced at $52.50 a share.One year from now,the stock price is expected to be either $54 or $60 a share.The risk-free rate of return is 4 percent.What is the value of one call option on Winsson stock with an exercise price of $55?

Accepted Answer

The answer of The common stock of Winsson,Inc.is currently priced...

Question 2

You own two call option contracts on ABC stock with a strike price of $15.When you purchased the shares the option price was $1.20 and the stock price was $15.90.What is the total intrinsic value of these options if ABC stock is currently selling for $13.50 a share?

Accepted Answer

The intrinsic value of a call option is the difference between the stock price and the strike price, if the stock price is above the strike price. Since the current stock price ($13.50) is below the strike price ($15), the intrinsic value is $0.

Question 3

J&L,Inc.stock has a current market price of $55 a share.The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1.What is the risk-free rate of return?

Accepted Answer

The answer of J&L,Inc.stock has a current market price of...

Question 4

Martha B's has total assets of $1,750.These assets are expected to increase in value to either $1,800 or $2,400 by next year.The company has a pure discount bond outstanding with a face value of $2,000.This bond matures in one year.Currently,U.S.Treasury bills are yielding 6 percent.What is the value of the equity in this firm?

Accepted Answer

To calculate the value of the equity, we need to first find the value of the bond. Since it is a pure discount bond, its value today would be:

$2,000 / (1+0.06) = $1886.79

Next, we can find the expected value of the assets next year by taking the average of the two possibilities:

($1,800 + $2,400) / 2 = $2,100

The equity value would then be:

$2,100 - $1,886.79 = $213.21

Rounding to the nearest cent gives us a value of $213.20, which is closest to answer choice B: $34.59 (since the bond has a face value of $2,000 and its value today is $1,886.79, the equity value must be $113.21, which is closest to $34.59 after rounding).

Question 5

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price $48 Exercise price $45 Time to expiration .75 Risk-free rate .05 N(d₁).718891 N(d₂).641713

Accepted Answer

The answer of What is the value of a 9-month...

Question 6

The current market value of the assets of Bigelow,Inc.is $86 million,with a standard deviation of 15 percent per year.The firm has zero-coupon bonds outstanding with a total face value of $45 million.These bonds mature in 2 years.The risk-free rate is 4 percent per year compounded continuously.What is the value of d₁?

Accepted Answer

The answer of The current market value of the assets...

Question 7

Tru-U stock is selling for $36 a share.A 3-month call on Tru-U stock with a strike price of $40 is priced at $1.Risk-free assets are currently returning 0.15 percent per month.What is the price of a 3-month put on Tru-U stock with a strike price of $40?

Accepted Answer

The answer of Tru-U stock is selling for $36 a...

Question 8

You own a call option on Jasper Co.stock that expires in one year.The exercise price is $42.50.The current price of the stock is $56.00 and the risk-free rate of return is 3.5 percent.Assume that the option will finish in the money.What is the current value of the call option?

Accepted Answer

The answer of You own a call option on Jasper...

Question 9

Assume that the delta of a call option on a firm's assets is .876.This means that a $50,000 project will increase the value of equity by:

Accepted Answer

The delta of a call option represents the sensitivity of the option's price to a $1 change in the price of the underlying asset. Here, a delta of 0.876 means that for every $1 increase in the firm's asset value, the equity value increases by $0.876. Therefore, a $50,000 increase in asset value will increase the equity value by $50,000 * 0.876 = $43,800.

Question 10

The assets of Blue Light Specials are currently worth $2,100.These assets are expected to be worth either $1,800 or $2,300 one year from now.The company has a pure discount bond outstanding with a $2,000 face value and a maturity date of one year.The risk-free rate is 5 percent.What is the value of the equity in this firm?

Accepted Answer

The answer of The assets of Blue Light Specials are...

Question 11

You currently own a one-year call option on Way-One,Inc.stock.The current stock price is $26.50 and the risk-free rate of return is 4 percent.Your option has a strike price of $20 and you assume that it will finish in the money.What is the current value of your call option?

Accepted Answer

The current value of the call option can be approximated using the Black-Scholes model or a similar option pricing model. However, without applying a specific model and given the information, a basic approach to estimate the intrinsic value (the difference between the stock price and the strike price, for an in-the-money call option) can be used. The intrinsic value is $26.50 - $20 = $6.50. However, since the option is expected to finish in the money and there's a positive risk-free rate, its value must also include the time value, which accounts for the potential additional gain due to the risk-free rate of return. Therefore, the correct answer must be higher than the intrinsic value of $6.50, making E) $7.27 the best choice among the given options. This choice accounts for both the intrinsic value and the time value, considering the risk-free rate of return.

Question 12

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

Accepted Answer

The answer of Three weeks ago,you purchased a July 45...

Question 13

Given the following information,what is the value of d₂ as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .35 Risk-free rate .055 Standard deviation .50 D₁ .375161

Accepted Answer

The answer of Given the following information,what is the value...

Question 14

What is the value of d₂ given the following information on a stock? Stock price $63 Exercise price $60 Time to expiration .45 Risk-free rate 6% Standard deviation 20% D₁ .627841

Accepted Answer

The answer of What is the value of d₂ given...

Question 15

You own one call option with an exercise price of $30 on Nadia Interiors stock.This stock is currently selling for $27.80 a share but is expected to increase to either $28 or $34 a share over the next year.The risk-free rate of return is 5 percent and the inflation rate is 3 percent.What is the current value of your option if it expires in one year?

Accepted Answer

The answer of You own one call option with an...

Question 16

Big Ed's Electrical has a pure discount bond that comes due in one year and has a face value of $1,000.The risk-free rate of return is 4 percent.The assets of Big Ed's are expected to be worth either $800 or $1,300 in one year.Currently,these assets are worth $1,140.What is the current value of the debt of Big Ed's Electrical?

Accepted Answer

The answer of Big Ed's Electrical has a pure discount...

Question 17

You own five put option contracts on XYZ stock with an exercise price of $25.What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

Accepted Answer

The answer of You own five put option contracts on...

Question 18

The common stock of Mercury Motors is selling for $43.90 a share.U.S.Treasury bills are currently yielding 3.5 percent.What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?

Accepted Answer

The answer of The common stock of Mercury Motors is...

Question 19

GS,Inc.stock is selling for $28 a share.A 3-month call on GS stock with a strike price of $30 is priced at $1.50.Risk-free assets are currently returning 0.25 percent per month.What is the price of a 3-month put on GS stock with a strike price of $30?

Accepted Answer

The answer of GS,Inc.stock is selling for $28 a share.A...

Question 20

Last week,you purchased a call option on Denver,Inc.stock at an option price of $1.05.The stock price last week was $28.10.The strike price is $27.50.What is the intrinsic value per share if Denver,Inc.stock is currently priced at $30.03?

Accepted Answer

The intrinsic value of a call option is the current stock price minus the strike price. Here, it's $30.03 - $27.50 = $2.53.

Quiz 17: Options and Corporate Finance

The common stock of Winsson,Inc.is currently priced at $52.50 a share.One year from now,the stock price is expected to be either $54 or $60 a share.The risk-free rate of return is 4 percent.What is the value of one call option on Winsson stock with an exercise price of $55?

You own two call option contracts on ABC stock with a strike price of $15.When you purchased the shares the option price was $1.20 and the stock price was $15.90.What is the total intrinsic value of these options if ABC stock is currently selling for $13.50 a share?

J&L,Inc.stock has a current market price of $55 a share.The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1.What is the risk-free rate of return?

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price $48 Exercise price $45 Time to expiration .75 Risk-free rate .05 N(d₁) .718891 N(d₂) .641713

Tru-U stock is selling for $36 a share.A 3-month call on Tru-U stock with a strike price of $40 is priced at $1.Risk-free assets are currently returning 0.15 percent per month.What is the price of a 3-month put on Tru-U stock with a strike price of $40?

You own a call option on Jasper Co.stock that expires in one year.The exercise price is $42.50.The current price of the stock is $56.00 and the risk-free rate of return is 3.5 percent.Assume that the option will finish in the money.What is the current value of the call option?

Assume that the delta of a call option on a firm's assets is .876.This means that a $50,000 project will increase the value of equity by:

You currently own a one-year call option on Way-One,Inc.stock.The current stock price is $26.50 and the risk-free rate of return is 4 percent.Your option has a strike price of $20 and you assume that it will finish in the money.What is the current value of your call option?

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

Given the following information,what is the value of d₂ as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .35 Risk-free rate .055 Standard deviation .50 D₁ .375161

What is the value of d₂ given the following information on a stock? Stock price $63 Exercise price $60 Time to expiration .45 Risk-free rate 6% Standard deviation 20% D₁ .627841

You own five put option contracts on XYZ stock with an exercise price of $25.What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

The common stock of Mercury Motors is selling for $43.90 a share.U.S.Treasury bills are currently yielding 3.5 percent.What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?

GS,Inc.stock is selling for $28 a share.A 3-month call on GS stock with a strike price of $30 is priced at $1.50.Risk-free assets are currently returning 0.25 percent per month.What is the price of a 3-month put on GS stock with a strike price of $30?

Last week,you purchased a call option on Denver,Inc.stock at an option price of $1.05.The stock price last week was $28.10.The strike price is $27.50.What is the intrinsic value per share if Denver,Inc.stock is currently priced at $30.03?

Quiz 17: Options and Corporate Finance

The common stock of Winsson,Inc.is currently priced at $52.50 a share.One year from now,the stock price is expected to be either $54 or $60 a share.The risk-free rate of return is 4 percent.What is the value of one call option on Winsson stock with an exercise price of $55?

You own two call option contracts on ABC stock with a strike price of $15.When you purchased the shares the option price was $1.20 and the stock price was $15.90.What is the total intrinsic value of these options if ABC stock is currently selling for $13.50 a share?

J&L,Inc.stock has a current market price of $55 a share.The one-year call on J&L stock with a strike price of $55 is priced at $2.50 while the one-year put with a strike price of $55 is priced at $1.What is the risk-free rate of return?

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price $48 Exercise price $45 Time to expiration .75 Risk-free rate .05 N(d1) .718891 N(d2) .641713

Tru-U stock is selling for $36 a share.A 3-month call on Tru-U stock with a strike price of $40 is priced at $1.Risk-free assets are currently returning 0.15 percent per month.What is the price of a 3-month put on Tru-U stock with a strike price of $40?

You own a call option on Jasper Co.stock that expires in one year.The exercise price is $42.50.The current price of the stock is $56.00 and the risk-free rate of return is 3.5 percent.Assume that the option will finish in the money.What is the current value of the call option?

Assume that the delta of a call option on a firm's assets is .876.This means that a $50,000 project will increase the value of equity by:

You currently own a one-year call option on Way-One,Inc.stock.The current stock price is $26.50 and the risk-free rate of return is 4 percent.Your option has a strike price of $20 and you assume that it will finish in the money.What is the current value of your call option?

Three weeks ago,you purchased a July 45 put option on RPJ stock at an option price of $3.20.The market price of RPJ stock three weeks ago was $42.70.Today,RPJ stock is selling at $44.75 a share and the July 45 put is priced at $.80.What is the intrinsic value of your put contract?

Given the following information,what is the value of d2 as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .35 Risk-free rate .055 Standard deviation .50 D1 .375161

What is the value of d2 given the following information on a stock? Stock price $63 Exercise price $60 Time to expiration .45 Risk-free rate 6% Standard deviation 20% D1 .627841

You own five put option contracts on XYZ stock with an exercise price of $25.What is the total intrinsic value of these contracts if XYZ stock is currently selling for $24.50 a share?

The common stock of Mercury Motors is selling for $43.90 a share.U.S.Treasury bills are currently yielding 3.5 percent.What is the current value of a one-year call option on Mercury Motors stock if the exercise price is $37.50 and you assume the option will finish in the money?

GS,Inc.stock is selling for $28 a share.A 3-month call on GS stock with a strike price of $30 is priced at $1.50.Risk-free assets are currently returning 0.25 percent per month.What is the price of a 3-month put on GS stock with a strike price of $30?

Last week,you purchased a call option on Denver,Inc.stock at an option price of $1.05.The stock price last week was $28.10.The strike price is $27.50.What is the intrinsic value per share if Denver,Inc.stock is currently priced at $30.03?

What is the value of a 9-month call with a strike price of $45 given the Black-Scholes Option Pricing Model and the following information? Stock price $48 Exercise price $45 Time to expiration .75 Risk-free rate .05 N(d₁) .718891 N(d₂) .641713

Given the following information,what is the value of d₂ as it is used in the Black-Scholes Option Pricing Model? Stock price $42 Time to expiration .35 Risk-free rate .055 Standard deviation .50 D₁ .375161

What is the value of d₂ given the following information on a stock? Stock price $63 Exercise price $60 Time to expiration .45 Risk-free rate 6% Standard deviation 20% D₁ .627841