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Exam 25: Option Valuation

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Question 151

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Provide a definition of a European options.

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An option that can b...

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Question 152

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Shares of a stock are currently priced at $28. The future price is expected to be either $27 or $32. The risk-free rate of return is 5%. What is the value of a twelve-month $25 call option?

A) $3.00
B) $3.19
C) $4.00
D) $4.19
E) $8.19

F) D) and E)
G) A) and E)

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Question 153

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The bonds of VDM, Inc. are convertible into shares of the firm's common stock at $50 per share. The current price of the common stock is $45 per share. The bonds have a $1,000 par value and Currently sell for $950 apiece. When the bonds were issued, the market price of the common stock Was $40. What is the conversion value of these bonds?

Given the following information, what is the value of d2 as it is used in the Black-Scholes Option Pricing Model?

__________ are frequently offered as a sweetener by firms in combination with private placements of bonds or loans.

An increase in the underlying stock price will increase the value of a call option.

The price at which a call option is exercised is called the _____ price.

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm Basically own a _____ option on the assets of the firm with a strike price of:

The common stock of Trynor's, Inc. is currently priced at $37.90 a share. One year from now, the stock price is expected to be either $38 or $43 a share. The risk-free rate of return is 3.5 percent. What is the current value of one call option on this stock if the exercise price is $40?

A convertible bond can be described as having upside potential with downside protection.

An increase in the exercise price will increase the value of a call option.

The conversion value of a convertible bond is computed as the:

A $1,000 convertible bond has a discount rate of 6%. The bond pays interest annually and has 10 years to maturity. The common stock is currently selling for $18 a share. The conversion premium is 5%) What is the conversion price?

Given an underlying stock price of $45.80, the October 45 call is in the money.

You own six call option contracts on Neilson Markets stock with a strike price of $30. When you purchased the shares the option price was $.45 and the stock price was $30.10. What is the total Intrinsic value of these options if the stock is currently selling for $29.70 a share?

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 $29.03?

The intrinsic value of a put:

When a call is out of the money then its intrinsic value is equal to:

An option issued by an individual that gives its owner the right to buy an asset at a fixed price on or before a given date is called a(n) :

The difference between the conversion price of a convertible bond and the current stock price, divided by the current stock price, is called the _______________.