A) $3.00
B) $3.75
C) $4.69
D) $5.86
E) $7.32
G) B) and D)
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A) Put options give investors the right to buy a stock at a certain exercise price before a specified date.
B) Call options give investors the right to sell a stock at a certain exercise price before a specified date.
C) Options typically sell for less than their exercise value.
D) LEAPS are very short-term options that have begun trading on the exchanges in recent years.
E) Option holders are not entitled to receive dividends unless they choose to exercise their option.
G) A) and B)
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A) Straddle option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
G) A) and B)
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A) $4.41
B) $4.90
C) $5.39
D) $5.93
E) $6.52
G) None of the above
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A) Call option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
G) A) and E)
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A) Risk management can increase debt capacity.
B) Risk management can help a firm maintain its optimal capital budget.
C) Risk management can reduce the expected costs of financial distress.
D) Risk management can help firms minimize taxes.
E) Risk management can allow managers to defer receipt of their bonuses and thus postpone tax payments.
G) A) and C)
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B) False
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B) False
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A) Straddle option.
B) Put option.
C) Out-of-the-money option.
D) Naked option.
E) Covered option.
G) A) and E)
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A) An option's value is determined by its exercise value, which is the market price of the stock less its strike price. Thus, an option can't sell for more than its exercise value.
B) As a stock's price increases, the premium portion of an option on that stock increases because the difference between the stock price and the fixed strike price increases.
C) If the company is consistently profitable, its call options will always be in the money.
D) The market value of an option depends in part on the option's length of time until expiration and on the variability of the underlying stock's price.
E) The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin becomes larger.
G) B) and D)
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A) A situation in which aggregate risk can be reduced by derivatives transactions between two parties.
B) A hedge in which an investor buys a stock and simultaneously sells a call option on that stock and ends up with a riskless position.
C) Standardized contracts that are traded on exchanges and are "marked to market" daily, but where physical delivery of the underlying asset is virtually never taken.
D) Two parties agree to exchange obligations to make specified payment streams.
E) Simultaneously buying and selling a call option with the same exercise price.
G) All of the above
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A) A swap involves the exchange of cash payment obligations.
B) The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, say dollars and pounds.
C) Swaps are very often arranged by a financial intermediary, who may or may not take the position of one of the counterparties.
D) A problem with swaps is that no standardized contracts exist, which has prevented the development of a secondary market.
E) Swaps can involve side payments in order to get the counterparty to agree to the swap.
G) All of the above
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A) Exercise price.
B) Variability of the stock price.
C) Length of time until option expiration.
D) Risk-free rate of interest.
E) Bond price.
G) B) and D)
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A) -$61.00
B) -$64.00
C) -$67.00
D) -$71.00
E) -$75.00
G) D) and E)
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A) 6.81%
B) 7.17%
C) 7.55%
D) 7.92%
E) 8.32%
G) A) and D)
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