Question;Deeble;Construction Co.'s stock is trading at $30 a share. Call options on the;company's stock are also available, some with a strike price of $25 and some;with a strike price of $35. Both options expire in three months. Which of the;following best describes the value of these options?;a.;The options with the $25 strike price will sell for $5.;b.;The options with the $35 strike price have an exercise value greater than;$0.;c.;If Deeble's stock price;rose by $5, the exercise value of the options with the $25 strike price;would also increase by $5.;d.;The options with the $25 strike price have an exercise value greater than;$5.;e.;The options with the $25 strike price will sell for less than the options;with the $35 strike price.;?;Check My Work (3;remaining);Which of the following statements is;CORRECT?;a. The market value of an option;depends in part on the option's time to maturity and also on the;variability of the underlying stock's price.;b.;Issuing options provides companies with a low cost method of raising;capital.;c.;The potential loss on an option decreases as the option sells at higher and;higher prices because the profit margin gets bigger.;d.;As the stock's price rises, the time value portion of an option on a stock;increases because the difference between the price of the stock and the;fixed strike price increases.;e.;An option's value is determined by its exercise value, which is the market;price of the stock less its striking price. Thus, an option can't sell for;more than its exercise value.;Call options on XYZ Corporation's;common stock trade in the market. Which of the following statements is most;correct, holding other things constant?;a. Assuming;the same strike price, an XYZ call option that expires in one month will;sell at a higher price than one that expires in three months.;b. The higher;the strike price on XYZ's options, the higher the option's price will be.;c. If XYZ's;stock price stabilizes (becomes less volatile), then the price of its;options will increase.;d. The price of these call options;is likely to rise if XYZ's stock price rises.;Suppose you believe that Delva Corporation's stock price is going to;decline from its current level of $82.50 sometime during the next 5 months.;For $510.25 you could buy a 5-month put option giving you the right to sell;100 shares at a price of $85 per share. If you bought this option for $510.25;and Delva's stock price actually dropped to $60, what would your pre-tax net;profit be?;a.;$2,089.24;b.;$2,193.70;c.-$510.25;d.;$1,989.75;e.;$2,303.38;The current price of a stock is $50;the annual risk-free rate is 6%, and a 1-year call option with a strike price;of $55 sells for $7.20. What is the value of a put option, assuming the same;strike price and expiration date as for the call option?;a.;$8.55;b.;$7.33;c.;$7.71;d.;$8.12;e.;$9.00;Problem 8-1;Options;?;eBook;?;A call option on the stock of Bedrock;Boulders has a market price of $7. The stock sells for $30 a share, and the;option has an exercise price of $24 a share.What is the exercise value of the;call option?;$;What is the option's time value?;$;Problem 8-2;Options;?;eBook;?;The exercise price on one of Flanagan;Company's options is $16, its exercise value is $22, and its time value is $4.;What are the option's market value and the price of the stock?;Market value;$;Price of the stock;$;An option that gives the holder the;right to sell a stock at a specified price at some future time is;a.;a call option.;b.;a naked option.;c.;an out-of-the-money option.;d.;a covered option.;e.;a put option.;Which of the following statements is;CORRECT?;a.;LEAPS are very short-term options that were created relatively recently and;now trade in the market.;b.;An option holder is not;entitled to receive dividends unless he or she exercises their option;before the stock goes ex dividend.;c.;Call options give investors the right to sell a stock at a certain strike;price before a specified date.;d.;Options typically sell for less than their exercise value.;e.;Put options give investors the right to buy a stock at a certain strike;price before a specified date.
Paper#50937 | Written in 18-Jul-2015Price : $19