Fin 534 week 6 quiz 5 (30 questions with answers) 99.99% scoredDocument Transcript
FIN 534 Week 6 Quiz 5 (30 questions with answers) 99.99% scored PLEASE DOWNLOAD HEREFinance 534 Week 6 Quiz 5 (30 questions with answers) 99.99% scoredQuestion 1Call options on XYZ Corporation’s common stock trade in the market. Which ofthe following statements is most correct, holding other things constant?Question 2Other things held constant, the value of an option depends on the stocks price,the risk-free rate, and theQuestion 3Which of the following statements is CORRECT?Question 4Which of the following statements is CORRECT?Question 5An investor who writes standard call options against stock held in his or herportfolio is said to be selling what type of options?Question 6An option that gives the holder the right to sell a stock at a specified price at somefuture time isQuestion 7The current price of a stock is $22, and at the end of one year its price will beeither $27 or $17. The annual risk-free rate is 6.0%, based on dailycompounding. A 1-year call option on the stock, with an exercise price of $22, isavailable. Based on the binominal model, what is the options value?Question 8
The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-yearcall option with a strike price of $55 sells for $7.20. What is the value of a putoption, assuming the same strike price and expiration date as for the call option?Question 9Which of the following statements is CORRECT?Question 10Deeble Construction Co.’s stock is trading at $30 a share. Call options on thecompany’s stock are also available, some with a strike price of $25 and somewith a strike price of $35. Both options expire in three months. Which of thefollowing best describes the value of these options?Question 11Which of the following statements is CORRECT?Question 12Warner Motors’ stock is trading at $20 a share. Call options that expire in threemonths with a strike price of $20 sell for $1.50. Which of the following will occur ifthe stock price increases 10%, to $22 a share?Question 13Suppose you believe that Johnson Companys stock price is going to increasefrom its current level of $22.50 sometime during the next 5 months. For $310.25you can buy a 5-month call option giving you the right to buy 100 shares at aprice of $25 per share. If you buy this option for $310.25 and Johnsons stockprice actually rises to $45, what would your pre-tax net profit be?Question 14Which of the following statements is CORRECT?Question 15Suppose you believe that Delva Corporations stock price is going to decline fromits current level of $82.50 sometime during the next 5 months. For $510.25 youcould 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 Delvas stock priceactually dropped to $60, what would your pre-tax net profit be?Question 16Which of the following statements is CORRECT?
Question 17Which of the following statements is CORRECT? Assume that the firm is apublicly-owned corporation and is seeking to maximize shareholder wealth.Question 18When working with the CAPM, which of the followingfactors can be determined with the most precision?Question 19For a company whose target capital structure calls for 50% debt and 50%common equity, which of the following statementsis CORRECT?Question 202 out of 2 pointsWhich of the following statements is CORRECT?Question 21Safeco Company and RiscoInc 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%. Safecois considering Project X, which has an IRR of 10.5% and is of the same risk as atypical 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 companys market risk is an average of thepre-merger companies market risks, and the merger has no impact on either thecash flows or the risks of Projects X and Y. Which of the following statements isCORRECT?Question 22Which of the following statements is CORRECT?Question 23Which 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 inthe future. The company uses the CAPM to calculate its cost of equity, and itstarget capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?Question 25Which of the following statements is CORRECT?Question 26For a typical firm, which of the following sequences is CORRECT? All rates areafter taxes, and assume that the firm operatesat its target capital structure.Question 27Which of the following statements is CORRECT?Question 28The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firms overall WACC is 12%. The CFO believes that this is thecorrect WACC for the company’s average-risk projects, but that a lower rateshould 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 differentrisks, the WACC used to evaluate each project should be the same because thecompany obtains capital for all projects from the same sources. If the CEO’sposition is accepted, what is likely to happen over time?Question 29Which of the following statements is CORRECT?Question 30Which of the following is NOT a capital component when calculating the weightedaverage cost of capital (WACC) for use in capital budgeting?