FIN 534 Week 11 Final Exam – Strayer New

Click On The Link Below To Purchase

Instant Download

http://www.budapp.net/FIN-534-Final-Exam-Strayer-New-FIN534W11E.htm

<strong>FIN 534 Final Exam Part 1 and Part 2 Solution</strong>

&nbsp;

<strong>Version 1</strong>

<strong>Part 1</strong>

&nbsp;

1. Which of the following statements is CORRECT?

&nbsp;

&nbsp;

Call options generally sell at a price less than their exercise value.

&nbsp;

If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

&nbsp;

Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

&nbsp;

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

&nbsp;

If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

&nbsp;

&nbsp;

2. Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio's stock price actually dropped to $60, what would your pre-tax net profit be?

&nbsp;

&nbsp;

-$5.10

&nbsp;

$19.90

&nbsp;

$20.90

&nbsp;

$22.50

&nbsp;

$27.60

&nbsp;

&nbsp;

3.  An option that gives the holder the right to sell a stock at a specified price at some future time is

&nbsp;

&nbsp;

a put option.

&nbsp;

an out-of-the-money option.

&nbsp;

a naked option.

&nbsp;

a covered option.

&nbsp;

a call option.

&nbsp;

&nbsp;

4. Which of the following statements is CORRECT?

&nbsp;

&nbsp;

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

&nbsp;

Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

&nbsp;

Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

&nbsp;

Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

&nbsp;

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

&nbsp;

&nbsp;

5. An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

&nbsp;

&nbsp;

Put

&nbsp;

Naked

&nbsp;

Covered

&nbsp;

Out-of-the-money

&nbsp;

In-the-money

&nbsp;

&nbsp;

6. Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?

&nbsp;

&nbsp;

-$3.10

&nbsp;