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25 Finance MCQs Assignment




Question;Question 1Which of the following statements is most correct?A. An options value is determined by its exercise value, which is the market price of the stock less itsstrike price. Thus, an option cant sell for more than its exercise value.B. The potential loss on a call option increases as the underlying stock sells at higher and higher pricesbecause the profit margin gets bigger.C. Issuing options provides companies with a low cost method of raising capitalD. The market value of an option depends in part on the options time to maturity and on the variability ofthe underlying stocks price.Question 2An analyst is interested in using the Black-Scholes model to value call options on the stock of QU, Inc.The analyst has accumulated the following information:Stock price$40Strike price$40Time until maturity6 monthsStandard deviation of the stock12%Risk free rate of return16%Using the Black-Scholes model, what is the value of the call option?A.$1.94B. $0.30C. $3.76D. $3.38E. $2.12.Question 3A ______ is a contract that requires the holder to buy or sell a stated commodity at a specified price at aspecified time in the future.A. optionB. convertible contractC. futuresD. warrant.Question 4The intrinsic value of a call option equals __________.A.X-P0B. P0-XC. c0-(P0-X)D. p0-(X-P0).Question 5The price at which the stock or asset may be purchased from (or sold to) the option writer is referred to asthe __________.A. option premiumB. open interestC. exercise valueD. strike price.Question 6A stock is currently selling for $20. In three months (91 days), the stock price will be either $30 or $11. Ifyou are considering a call option for this stock with an exercise price of $21, what would be the value ofthis option today? The risk free rate of return is 4.5%.A. $18.79B. $4.32C. $8.90D. $9.23.4 pointsQuestion 7Googles closing price today was $501.71. You think its now a bargain, so youre looking to buy a calloption with a strike price of $600. Those LEAP things sound good, and you can get a call with anexpiration date of August 2015. If GOOGs standard deviation of returns is 25% annually and the risk-freerate is 3.5%, what would be the value of the LEAP today?A. $49.05B. $132.24C. $57.73D. $0.Question 8What is the exercise value of a 6-month put option that has an exercise price of $50, a corresponding calloption value of $4.17 and a current market price of the underlying stock of $43.50? Assume that the annualrisk-free rate is 5 percent.A. $0B. $2.33C. $9.44D. $6.50.Question 9You own a call option. The underlying common stock is selling for $15 and the options exercise price is$12. This option:A. must be sold to the call writer.B. is out-of-the-money.C. must be bought by the call holder.D. is in-the-money..Question 10Considering each action independently and holding other things constant, which of the following actionswould reduce a firm's need for additional capital?A. an increase in the dividend payout ratioB. a decrease in the profit marginC. a decrease in expected sales growthD. a decrease in the accrual accounts (accrued wages and taxes).Question 11Which of the following statements is most correct?A. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed morefavorably than stock repurchasesB. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes onthe dividends that they choose to reinvestC. If a company announces a 2-for-1 stock split and the overall value of the firm remains unchanged, thecompanys stock price must have doubledD. None of the statements above is correct..Question 12Which of the following lists events in chronological order from earliest to latest?A. Date of Record, Declaration Date, Ex-dividend DateB. Date of Record, Ex-dividend Date, Declaration DateC. Declaration Date, Date of Record, Ex-dividend DateD. Declaration Date, Ex-dividend Date, Date of Record.Question 13How can a gold futures contract be used as a hedge against a potential decrease in the price of gold for afirm that uses gold in making computer chips?A. the company should sell gold futures contractsB. the company should buy gold futures contractsC. this would be a situation that shouldnt be hedgedD. the company should lower the price it pays for gold.Question 14A futures trader who bets on the future direction of prices by taking either a long or a short position iscalled a:A. hedgerB. short sellerC. speculatorD. dealer.Question 15Ledbetters Sweaters has a mutually exclusive project, to produce and sell wool sweaters or to produce andsell cashmere sweaters. The investment into production of wool sweaters is $110,000. The investment intocashmere sweaters is $125,000. The projects respective DCFs given future sales projections are:What is the NPV of the wool line?A.$41,000B. $6,000C. $56,000D. $21,000.Question 16It is now August 2013 (in case you forgot). The cost to stage Pirates of the Caribbean on Ice is $3 million.This cost wont be incurred until 2015. The company will stage the show in 2016 and 2017, generatingcash inflows of $2 million each year. In 2018, the show will be cancelled at an overall net cost of$500,000. What is the IRR of this project?A. 14.36%B. 21.53%C. 10.17%D. 12.7%.Question 17The _____ designates the date on which the corporation lists the shareholders who are entitled to receive adividend payment.A. declaration dateB. ex-dividend dateC. date of recordD. payment date.Question 18What is the fundamental purpose of a stock split?A. A split shows the companys preference for retaining funds.B. A split increases the threat of a hostile takeover.C. A split immediately increases the investors wealth.D. A split immediately brings the stock price to a lower trading range..Question 19Which of the following is a spontaneous source of financing?A. accrued expensesB. notes payableC. common stockD. retained earnings.Question 20Which of the following accounts would not normally or be least likely to increase in proportion with aplanned increase in sale?A. Accounts receivableB. InventoryC. Accounts payableD. Accrued expensesE. Notes payable.Question 21Which of the following dividend policies would cause dividends per share to fluctuate the least?A.Constant Payout RatioB. Constant DollarC.Small regular plus specialD. Residual Dividend Method.Question 22The first step involved in predicting a firms financial needs isA. projecting the firms sales and expenses over the planning periodB. estimating the levels of investment in current and fixed assets that are necessary to support theprojected salesC. determining the firms financing needs throughout the planning periodD. none of the above.Question 23Which of the following is not consistent with the life cycle theory of a dividend policy?A.In the maturing stage, a company should pay dividendsB. In the infancy stage, a company should pay dividendsC. In the declining stage, a company should pay dividendsD. In the growth stage, a company could pay a low dividend.Question 24Norman Necktie Companys balance sheet showed the following as of December 31:Cash$800Accounts payable$350Accounts receivable450Accruals150Inventory950Notes payable2000Total current assets$2200Total current liabilities$2500Net fixed assets$34000LT debt$26500Common stock3200Retained earnings4000Total assets$36200Total liabilities & equity$36200The company expects sales to double, from $10,000 to $20,000. Net income is anticipated to be $1000.Current assets, accounts payable and accruals will grow in proportion to sales. There is no anticipatedchange in net fixed assets. Will the company need any additional funds, if there are no dividends paid nextyear? If so, how much?A. No, $0B. Yes, $7,700C. Yes, $1,700D. Yes, $700.Question 25Albany Motors recently completed a 3-for-1 stock split. Prior to the split, the company had 10 millionshares outstanding and its stock price was $150 per share. After the split, the total market value of thecompanys stock equaled $1.5 billion. What was the price of the companys stock following the stock split?A. $15B. $45C. $450D. $50E. $150


Paper#47731 | Written in 18-Jul-2015

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