# Fundamentals of Corporate Finance Study Set 2

## Quiz 25 :Option Valuation

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Travis owns a stock that is currently valued at $45.80 a share. He is concerned that the stock price may decline so he just purchased a put option on the stock with an exercise price of$45. Which one of the following terms applies to the strategy Travis is using?
Free
Multiple Choice

C

Put-call parity is defined as the relationship between which of the following variables? I. risk-free asset II. underlying stock price III. call option IV. put option
Free
Multiple Choice

E

Assume the price of Westward Co. stock increases by one percent. Which one of the following measures the effect that this change in the stock price will have on the value of the Westward Co. options?
Free
Multiple Choice

D

Which one of the following defines the relationship between the value of an option and the option's time to expiration?
Multiple Choice
Assume the standard deviation of the returns on ABC stock increases. The effect of this change on the value of the call options on ABC stock is measured by which one of the following?
Multiple Choice
The sensitivity of an option's value to a change in the risk-free rate is measured by which one of the following?
Multiple Choice
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?
Multiple Choice
Amy just purchased a right to buy 100 shares of LKL stock for $35 a share on June 20, 2009. Which one of the following did Amy purchase? Multiple Choice Answer: Which one of the following provides the option of selling a stock anytime during the option period at a specified price even if the market price of the stock declines to zero? Multiple Choice Answer: Which one of the following best defines the primary purpose of a protective put? Multiple Choice Answer: Which one of the following acts like an insurance policy if the price of a stock you own suddenly decreases in value? Multiple Choice Answer: Which one of the following can be used to replicate a protective put strategy? Multiple Choice Answer: Given the (1) exercise price E, (2) time to maturity T, and (3) European put-call parity, the present value of E plus the value of the call option is equal to the: Multiple Choice Answer: Which one of the following will provide you with the same value that you would have if you just purchased BAT stock? Multiple Choice Answer: Under European put-call parity, the present value of the strike price is equivalent to: Multiple Choice Answer: Traci wants to have$16,000 six years from now and wants to deposit just one lump sum amount today. The annual percentage rate applicable to her investment is 6.8 percent. Which one of the following methods of compounding interest will allow her to deposit the least amount possible today?
Multiple Choice