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1 | |
If company management pursues activities that lead to an increase in the volatility of the market value of the firm's assets, then according to the Black-Scholes model for corporate security valuation, the stockholders will and the bondholders will . |
| | A) | benefit; benefit |
| | B) | benefit; be harmed |
| | C) | be harmed; benefit |
| | D) | be harmed; be harmed |
| | E) | be unaffected; be harmed |
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2 | |
If company management pursues short-horizon projects at the expense of longer-horizon projects, then according to the Black-Scholes model for corporate security valuation, all else the same, the stockholders will and the bondholders will . |
| | A) | benefit; benefit |
| | B) | benefit; be harmed |
| | C) | be harmed; benefit |
| | D) | be harmed; be harmed |
| | E) | be unaffected; be harmed |
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3 | |
If two companies in non-complementary industries pursue a purely financial merger (i.e., there are no operational synergies involved), then in the option pricing framework it is most likely that this merger will: |
| | A) | Lead to technical bankruptcy. |
| | B) | Not affect shareholder value for either merging company. |
| | C) | Lead to an increase in shareholder value for the larger company's shareholders, but a destruction of shareholder value for the smaller company's shareholders. |
| | D) | Lead to a destruction of shareholder value for the larger company's shareholders, and an increase in shareholder value for the smaller company's shareholders. |
| | E) | Lead to a destruction of shareholder value for both company's shareholders. |
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4 | |
The market value of a firm's (risky) debt is equal to the market value of its assets less the market value of its equity calculated from the Black-Scholes pricing model. From put-call parity, an alternative interpretation of the market value of risky debt is that it is equal to: |
| | A) | Riskless discount bonds with face value equal to the book value of debt, and purchased put options on the market value of the firm's assets. |
| | B) | Riskless discount bonds with face value equal to the book value of debt, and purchased put options on the book value of the firm's assets. |
| | C) | Riskless discount bonds with face value equal to the book value of debt, and written put options on the market value of the firm's assets. |
| | D) | Riskless discount bonds with face value equal to the book value of debt, and written put options on the book value of the firm's assets. |
| | E) | Riskless discount bonds with face value equal to the market value of debt. |
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5 | |
A put option with exercise price $30 and 3 months to expiration sells for $1.55. The continuously-compounded risk-free rate is 6% annually, and the stock sells for $35. How much must a call option sell for with the same exercise price and expiration? |
| | A) | $3.45 |
| | B) | $5.00 |
| | C) | $7.00 |
| | D) | $8.55 |
| | E) | $9.25 |
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6 | |
A call option with exercise price $30 and 6 months to expiration sells for $12. The continuously-compounded risk-free rate is 9% annually, and the stock sells for $40. How much must a put option sell for with the same exercise price and expiration? |
| | A) | $5.00 |
| | B) | $3.17 |
| | C) | $1.59 |
| | D) | $0.68 |
| | E) | $0.25 |
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7 | |
A call option with exercise price $30 and 4 months to expiration sells for $2.25. The continuously-compounded risk-free rate is 8% annually, and a put option with the same exercise price and expiration as the call sells for $3.46. What is the stock price? |
| | A) | $25 |
| | B) | $28 |
| | C) | $30 |
| | D) | $32 |
| | E) | $35 |
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8 | |
A call option with exercise price $30 and 6 months to expiration sells for $3.14. A put option with the same exercise price and expiration as the call sells for $2.40. The current stock price is $30. What is the continuously-compounded risk-free interest rate? |
| | A) | 3% |
| | B) | 4% |
| | C) | 5% |
| | D) | 6% |
| | E) | 7% |
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9 | |
What is the future value of $5,000 invested for 4 years at 7.5% interest compounded continuously? |
| | A) | $6,250.00 |
| | B) | $6,321.89 |
| | C) | $6,587.12 |
| | D) | $6,677.35 |
| | E) | $6,749.24 |
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10 | |
What is the present value of $20,000 to be received in 3 years at a 9% discount rate compounded continuously? |
| | A) | $14,809.75 |
| | B) | $14,926.04 |
| | C) | $15,267.59 |
| | D) | $15,443.67 |
| | E) | $15,874.12 |
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