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##### FIN 534 Financial Management Week 6 Quiz 5 (STRAYER)

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Question;Finance 534 week 6 Quiz5;Question 1;Call;options on XYZ Corporation?s common stock trade in the market. Which of the following statements is most;correct, holding other things constant?;Answer;Question 2;Other;things held constant, the value of an option depends on the stock's price, the;risk-free rate, and the;Question 3;Which;of the following statements is CORRECT?;Question 4;Which;of the following statements is CORRECT?;Question 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?;Question 6;An;option that gives the holder the right to sell a stock at a specified price at;some future time is;Question 7;2 out of 2 points;The;current price of a stock is \$22, and at the end of one year its price will be;either \$27 or \$17. The annual risk-free;rate is 6.0%, based on daily compounding.;A 1-year call option on the stock, with an exercise price of \$22, is;available. Based on the binominal model;what is the option's value?;Question 8;2 out of 2 points;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?;Answer;Question 9;Which;of the following statements is CORRECT?;Question 10;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?;Question 11;2 out of 2 points;Which;of the following statements is CORRECT?;Question 12;Warner;Motors? stock is trading at \$20 a share.;Call options that expire in three months with a strike price of \$20 sell;for \$1.50. Which of the following will;occur if the stock price increases 10%, to \$22 a share?;Question 13;2 out of 2 points;Suppose;you believe that Johnson Company's stock price is going to increase from its;current level of \$22.50 sometime during the next 5 months. For \$310.25 you can buy a 5-month call option;giving you the right to buy 100 shares at a price of \$25 per share. If you buy this option for \$310.25 and;Johnson's stock price actually rises to \$45, what would your pre-tax net profit;be?;Question 14;2 out of 2 points;Which;of the following statements is CORRECT?;Question 15;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?;Question 16;Which;of the following statements is CORRECT?;Question 17;Which;of the following statements is CORRECT?;Assume that the firm is a publicly-owned corporation and is seeking to;maximize shareholder wealth.;Question 18;When;working with the CAPM, which of the following;factors can be determined with the most precision?;Question 19;For a;company whose target capital structure calls for 50% debt and 50% common;equity, which of the following statements is CORRECT?;Question 20;2 out of 2 points;Which;of the following statements is CORRECT?;Question 21;Safeco;Company and Risco Inc are identical in size and capital structure. However, the riskiness of their assets and;cash flows are somewhat different, resulting in Safeco having a WACC of 10% and;Risco a WACC of 12%. Safeco is;considering Project X, which has an IRR of 10.5% and is of the same risk as a;typical Safeco project. Risco is;considering Project Y, which has an IRR of 11.5% and is of the same risk as a;typical Risco project.;Now assume that the two companies merge and form a new;company, Safeco/Risco Inc. Moreover, the;new company's market risk is an average of the pre-merger companies' market;risks, and the merger has no impact on either the cash flows or the risks of Projects;X and Y. Which of the following;statements is CORRECT?;Question 22;Which of the following statements;is CORRECT?;Question 23;Which;of the following statements is CORRECT?;Question 24;Schalheim;Sisters Inc. has always paid out all of its earnings as dividends, hence, the;firm has no retained earnings. This same;situation is expected to persist in the future.;The company uses the CAPM to calculate its cost of equity, and its;target capital structure consists of common stock, preferred stock, and;debt. Which of the following events;would REDUCE its WACC?;Question 25;Which;of the following statements is CORRECT?;Question 26;2 out of 2 points;For a;typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that;the firm operates;at its target capital structure.;Question 27;Which;of the following statements is CORRECT?;Question 28;The;MacMillen Company has equal amounts of low-risk, average-risk, and high-risk;projects. The firm's overall WACC is;12%. The CFO believes that this is the;correct WACC for the company?s average-risk projects, but that a lower rate;should be used for lower-risk projects and a higher rate for higher-risk;projects. The CEO disagrees, on the;grounds that even though projects have different risks, the WACC used to;evaluate each project should be the same because the company obtains capital;for all projects from the same sources.;If the CEO?s position is accepted, what is likely to happen over time?;Question 29;2 out of 2 points;Which;of the following statements is CORRECT?;Question 30;Which;of the following is NOT a capital component when calculating the weighted;average cost of capital (WACC) for use in capital budgeting?

Paper#51426 | Written in 18-Jul-2015

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