公司理财精要版原书第12版习题库答案Ross12e-Chapter24-TB

FundamentalsofCorporateChapter24 OptionValuation

ss)Travisownsastockthatiscurrentlyvaluedat$45.80ashare.Heisconcernedthatthepricemaydeclinesohejustpurchasedaputoptiononthestockwithanexercisepriceof$45.Whichoneofthefollowingtermsappliestothisstrategy?Put-callparityCoveredcallProtectiveputStraddleStrangleAccordingtoput-callparity,thepresentvalueoftheexercisepriceisequaltothe:stockpriceplusthecallpremiumminustheputpremium.callpremiumplustheputpremiumminusthestockprice.stockpriceminustheputpremiumminusthecallpremium.putpremiumplusthecallpremiumminusthestockprice.stockpriceplustheputpremiumminusthecallpremium.Intheput-callparityformula,thepresentvalueoftheexercisepriceiscomputedusingthe:nominalmarketrate.realmarketrate.realinflationrate.nominalinflationrate.risk-freerate.Whichoneofthefollowingprovidestheoptionofsellingastockataspecifiedpriceonstateddateevenifthemarketpriceofthestockdeclinestozero?AmericancallEuropeancallAmericanputEuropeanputEitheranAmericanorEuropeanputTheprimarypurposeofaprotectiveputisto:ensureamaximumpurchasepriceinthefuture.offsetanequivalentcalloption.limitthedownsideriskofassetownership.lockinarisk-freerateofreturnonafinancialasset.increasetheupsidepotentialreturnonaninvestment.Whichoneofthefollowingcanbeusedtoreplicateaprotectiveputstrategy?RisklessinvestmentandstockpurchaseStockpurchaseandcalloptionCalloptionandrisklessinvestmentRisklessinvestmentandwritingaputCalloption,stockpurchase,andrisklessinvestmentWhichoneoftheseismostequivalenttoe Rt?A)−2.71828RtB)−1/2.71828RtC)1/2.71828RtD)1−2.71828RtE)1/2.71828RtUnderEuropeanput-callparity,thepresentvalueofthestrikepriceisequivalenttopresentvalueof:thecurrentvalueofthestockminusthecallpremium.themarketvalueofthestockplustheputpremium.aU.S.Treasurycouponbondwithafacevalueequaltothestrikeprice.aU.S.Treasurybillwithafacevalueequaltothestrikeprice.anyrisk-freesecuritywithafacevalueequaltothestrikepriceandacouponrateequaltorisk-freerateofreturn.IntheBlack-Scholesoptionpricingformula,N(d1)istheprobabilitythatanormallydistributedrandomvariableis:lessthanorequaltoN(d2).lessthan1.equalto1.equaltod1.lessthanorequaltod1.IntheBlack-Scholesoptionpricingmodel,thesymbol"σ"isusedtorepresentthestandarddeviationofthe:optionpremiumonacallwithaspecifiedexerciseprice.rateofreturnontheunderlyingasset.volatilityoftherisk-freerateofreturn.rateofreturnonarisk-freeasset.optionpremiumonaputwithaspecifiedexerciseprice.Allofthefollowingaffectthevalueofacalloptionexceptthe:strikeprice.stockprice.standarddeviationofthereturnsonarisk-freeasset.continuouslycompoundedrisk-freerate.timetomaturity.TocomputethevalueofaputusingtheBlack-Scholesoptionpricingmodel,you:assumetheequivalentcallisworthlessandthenapplytheput-callparityformula.havetocomputethevalueoftheputasifitisacallandthenapplytheput-callformula.subtractthevalueofanequivalentcallfrom1.0.subtractthevalueofanequivalentcallfromthemarketpriceofthestock.multiplythevalueofanequivalentcallbyert.Whichoneofthefollowingstatementsiscorrect?ThepriceofanAmericanputisequaltothestockpriceminustheexerciseprice.ThevalueofaEuropeancallisgreaterthanthevalueofacomparableAmericancall.Thevalueofaputisequaltooneminusthevalueofanequivalentcall.Thevalueofaputminusthevalueofacomparablecallisequaltothevalueoftheminustheexerciseprice.ThevalueofanAmericanputwillequalorexceedthevalueofacomparableEuropeanput.Whichoneofthefollowingcannotbeeitherusedbyorcalculatedbytheoptionpricingmodel?Risk-freerateofreturnPremiumonanAmericancalloptionTimetomaturitygreaterthanoneyearUnderlyingassetvalueAnexercisepriceequaltothefacevalueofafirm'sdebt2WhencomputingthevalueofacalloptionusingtheBlack-Scholesoptionpricingmodel,d2iscalculatedas:A)σt.5−1.B)1−σt.5.1C)d −σt.5.1D)1+σt.5.E)d1+σt.5.Whichoneofthefollowingstatementsrelatedtooptionsiscorrect?Americanstockoptionscanbeexercisedbutnotresold.AEuropeancalliseitherequaltoorlessvaluablethanacomparableAmericancall.Europeanputscanberesoldbutcanneverbeexercised.Europeanoptionscanbeexercisedonanydividendpaymentdate.AmericanoptionsarevaluedusingtheBlack-Scholesoptionpricingmodel.Assumeallstocksarenon-dividendpaying.Giventhisassumption,whichoneofstatementsiscorrectregardingstockoptions?EuropeanputoptionsaremorevaluablethancomparableAmericanputoptions.Exercisingawell-into-the-moneyAmericanputoptionisgenerallynotagoodidea.ItisneveroptimaltoexerciseanAmericancalloptionearly.Youshouldwaittoexerciseaputoptionifthestockpricefallstozero.Youarebetteroffexercisinganin-the-moneycalloptionthansellingit.Assumetherisk-freerateincreasesbyonepercent.Whichoneofthefollowingmeasureseffectthischangewillhaveonthevalueofafirm'sstockoptions?ThetaVegaDeltaRhoGammaWhichoneofthefollowingdefinestherelationshipbetweenthevalueofanoptionandoption'stimetoexpiration?ThetaVegaRhoDeltaGammaAssumethestandarddeviationofthereturnsonABCstockincreases.Thischangewill thevalueofthecalloptionsand thevalueoftheputoptionsonABCstock.increase;decreaseincrease;increasedecrease;decreasedecrease;increasenoteffect;noteffectAssumetherisk-freerateincreases.Thischangewill thevalueofcalloptionsand thevalueofputoptionsonsharesofstock.increase;decreaseincrease;increasedecrease;decreasedecrease;increasenotaffect;notaffectTheestimateofthefuturevolatilityofthereturnsontheunderlyingassetthatisusingtheBlack-Scholesoptionpricingmodelisreferredtoasthe:residualerror.impliedmeanreturn.derivedcasevolatility.forecastrho.impliedstandarddeviation.Thevalueofacalloptiondeltaisbestdefinedasavaluethatis:betweenzeroandone.lessthanzero.greaterthanzero.greaterthanorequaltozero.lessthanorequaltozero.Givenasmallchangeinthevalueoftheunderlyingstock,thechangeinanoption'spriceapproximatelyequaltothechangeinstockvalue:dividedbydelta.dividedby(1−Delta).dividedby(1+Delta).multipliedby(1−Delta).multipliedbydelta.Ifthepriceoftheunderlyingstockdecreases,thenthevalueofthecalloptions andthevalueoftheputoptions .decrease;decreasedecrease;increaseincrease;decreaseincrease;increaseincrease;remainunchangedWhichoneofthefollowingstatementsiscorrect?IncreasingthetimetomaturitymaynotincreasethevalueofaEuropeanput.Anincreaseintimedecreasesthevalueofacalloption.ExercisinganAmericanoptionisalwaysmorevaluablethansellingtheoption.Calloptionstendtobelesssensitivetothepassageoftimethanareputoptions.Vegameasuresthesensitivityofanoption'svaluetothepassageoftime.Thetameasuresanoption's:intrinsicvalue.volatility.rateoftimedecay.sensitivitytochangesinthevalueoftheunderlyingasset.sensitivitytochangesintherisk-freerate.Sellingacalloptionisgenerallymorevaluablethanexercisingtheoptionbecauseofoption's:rinsicvalue.standarddeviation.exerciseprice.timepremium.Whichoneofthefollowingstatementsiscorrect?Thevalueofacalloptiondecreasesasthetimetoexpirationincreases.Adecreaseintherisk-freeratedecreasesthevalueofaputoption.Increasingtherisk-freeratedecreasesthevalueofacalloption.Thevalueofaputoptionincreaseswhenthestandarddeviationofthereturnsonunderlyingstockincrease.Increasingthestrikepricedecreasesthevalueofaputoption.Adecreaseinwhichofthefollowingwillincreasethevalueofaputoptiononastock?StrikepriceandstandarddeviationofthereturnsontheunderlyingstockStockpriceandrisk-freerateTimetoexpirationandstrikepriceRisk-freerateandstandarddeviationofthereturnsontheunderlyingstockTimetoexpirationandstockpriceWhichoneofthefivefactorsincludedintheBlack-Scholesoptionpricingmodelcannotdirectlyobserved?Risk-freerateStrikepriceStandarddeviationStockpriceLifeoftheoptionWhichoneofthefollowingstatementsrelatedtotheimpliedstandarddeviation(ISD)correct?TheISDisanestimateofthehistoricalstandarddeviationoftheunderlyingsecurity.ISDisequalto).TheISDestimatesthevolatilityofanoption'spriceovertheoption'slifespan.ThevalueofISDisdependentuponboththerisk-freerateandthetimetooptionexpiration.ISDconfirmstheobservablevolatilityofthereturnontheunderlyingsecurity.TheimpliedstandarddeviationusedintheBlack-Scholesoptionpricingmodelis:basedonhistoricalperformance.apredictionofthevolatilityofthereturnontheunderlyingassetoverthelifeoftheoption.ameasureofthetimedecayofanoption.anestimateofthefuturevalueofanoptiongivenastrikepricee.ameasureofthehistoricalintrinsicvalueofanoption.Thevalueofanoptionisequaltothe:intrinsicvalueminusthetimepremium.timepremiumplustheintrinsicvalue.impliedstandarddeviationplustheintrinsicvalue.summationoftheintrinsicvalue,thetimepremium,andtheimpliedstandarddeviation.summationofdelta,theta,vega,andrho.Fortheequityofafirmtobeconsideredacalloptiononthefirm'sassets,thefirmmust:beindefault.beleveraged.paydividends.haveanegativecashflowfromoperations.haveanegativecashflowfromassets.Payingoffafirm'sdebtiscomparableto ontheassetsofthefirm.purchasingaputoptionpurchasingacalloptionexercisinganin-the-moneyputoptionexercisinganin-the-moneycalloptionwritingaputoptionTheshareholdersofafirmwillbenefitthemostfromapositivenetpresentvaluewhenthedeltaofthecalloptiononthefirm'sassetsis:equaltoone.betweenzeroandone.equaltozero.betweenzeroandminusone.equaltominusone.Thevalueoftheriskydebtofafirmisequaltothevalueof:acalloptionplusthevalueofarisk-freebond.arisk-freebondplusaputoption.theequityofthefirmminusaput.theequityofthefirmplusacalloption.arisk-freebondminusaputoption.Afirmhasassetsof$16.4millionand2-year,zero-coupon,riskybondswithatotalvalueof$7.4million.Thebondshaveatotalcurrentmarketvalueof$7.1million.Theshareholdersofthisfirmcanchangetheseriskybondsintorisk-freebondsbypurchasinga optionwitha2-yearlifeandastrikepriceof million.call;$7.1call;$7.4C)put;$16.4put;$7.1put;$7.4Purelyfinancialmergers:arebeneficialtostockholders.arebeneficialtobothstockholdersandbondholders.aredetrimentaltostockholders.addvaluetoboththetotalassetsandthetotalequityofafirm.reduceboththetotalassetsandthetotalequityofafirm.Apurelyfinancialmerger:increasestheriskthatthemergedfirmwilldefaultonitsdebtobligations.hasnoeffectontherisklevelofthefirm'sdebt.reducesthevalueoftheoptiontogobankrupt.hasnoeffectontheequityvalueofafirm.reducestherisklevelofthefirmtherebyincreasingthevalueofthefirm'sequity.Whichoneofthefollowingstatementsiscorrect?Mergersbenefitshareholdersbutnotcreditors.PositiveNPVprojectswillautomaticallybenefitbothcreditorsandshareholders.Theremaybeconflictsbetweentheinterestsofbondholdersandshareholders.CreditorsprefernegativeNPVprojectswhileshareholderspreferpositiveNPVprojects.Mergersrarelyaffectbondholders.Iftherisk-freerateis6.5percentcompoundedannually,whatisthecompoundedrisk-freerateequalto?A)1/ln1.065B)6.10%C)ln1.065D)6.24%E)e1.065−1Thismorning,KateputaEuropeanprotectiveputstrategyinplacewhenthecostofABCstockwas$29.15pershareandthe1-year$30ABCputwaspricedat$1.05pershare.Howmuchprofitpersharewillsheearnfromthisstrategyifthestockisworth$28ashareontheexpirationdate?A)$7.80B)−$1.05C)−$.20D)$8.85E)$1.25Youneed$15,400inthreeyears.Howmuchdoyouneedtodeposittodaytofundthisifyoucanearn5percentperyear,compoundedcontinuously?Assumethisistheonlydeposityoumake.A)$13,506B)$13,049C)$14,179D)$13,255E)$12,916Astockissellingfor$62pershare.Acalloptionwithanexercisepriceof$65sellsfor$3.85andexpiresinthreemonths.Therisk-freerateofinterestis2.8percentperyear,compoundedcontinuously.Whatisthepriceofaputoptionwiththesameexercisepriceandexpirationdate?A)$6.74B)$6.23C)$6.67D)$6.40E)$6.95Aputoptionthatexpiresineightmonthswithanexercisepriceof$55sellsfor$7.34.Thestockiscurrentlypricedat$52,andtherisk-freerateis3.1percentperyear,compoundedcontinuously.WhatisthepriceofacalloptionwiththesameexercisepriceandexpirationA)$5.67B)$5.47C)$5.34D)$4.71E)$4.92Today,youpurchased300sharesofLazyZstockfor$49.80pershare.Youalsoboughtthree1-year,$50putoptionsonLazyZstockatacostof$.55pershare.Whatisthetotalamountyoucanloseoverthenextyearonthesepurchases?A)−$15,105B)−$11,050C)−$160D)−$105E)$0Today,Tedpurchased500sharesofABCstockatapriceof$42.20pershare.HealsopurchasedfiveputoptioncontractsonABCatapriceof$.10pershare,anexercisepriceofanda1-yearterm.WhatisthemaximumlossTedcanrealizeonhisinvestmentsoverthenextyear?A)−$1,105B)−$1,050C)−$1,115D)−$1,150E)$0WebsterUnitedstockispricedat$35.79pershare.The6-month$35calloptionsarepricedat$1.40andtherisk-freerateis3.2percent,compoundedcontinuously.Whatisthepersharevalueofthe6-monthputoption?A)$.15B)$.05C)$0D)$.20E)$.25Day'sEndstockissellingfor$43ashare.The6-monthcallwithastrikepriceof$45pricedat$.30.Risk-freeassetsarecurrentlyreturning4.1percentperyear,compoundedcontinuously.Whatisthepriceofa6-monthputwithastrikepriceof$45?A)$1.39B)$1.46C)$1.28D)$1.51E)$1.32Theone-yearcallonTLMstockwithastrikepriceof$65ispricedat$2.20whiletheyearputwithastrikepriceof$65ispricedat$11.18.Theannualrisk-freerateis3.8percent,compoundedcontinuously.WhatisthecurrentpriceofTLMstock?A)$53.60B)$48.90C)$56.70D)$50.10E)$47.65GroceryExpressstockissellingfor$22ashare.Athree-month,$20callonthisstockispricedat$2.85.Risk-freeassetsarecurrentlyreturning.2percentpermonth.Whatisthepriceathree-monthputonGroceryExpressstockwithastrikepriceof$20?A)$.37B)$.73C)$.87D)$1.10E)$1.18J&Nstockhasacurrentmarketpriceof$51.97ashareandtheannualrisk-freerateispercent,compoundedcontinuously.The1-yearcallonthisstockwithastrikepriceof$55ispricedat$2.30.Whatisthepriceoftheone-yearputwithastrikepriceof$55?A)$3.07B)$2.86C)$3.22D)$2.94E)$2.99Youinvest$2,500todayat5.5percent,compoundedcontinuously.Howmuchwillinvestmentbeworth12yearsfromnow?A)$3,728B)$4,837C)$4,311D)$3,422E)$3,791Toddinvested$12,000inanaccounttodayat4.5percent,compoundedcontinuously.willthisinvestmentbeworthin15years?A)$26,203B)$25,845C)$24,287D)$25,941E)$23,568WTFoodsstockissellingfor$38ashare.The6-month$40callonthisstockissellingfor$2.01whilethe6-month$40putispricedat$3.60.Whatisthecontinuouslycompoundedrisk-freerateofreturn?2.7percent2.4percent1.8percent1.5percent2.1percentThestockofEHIhasacurrentmarketvalueof$21.50ashare.The3-monthcallwithastrikepriceof$20issellingfor$2.07whilethe3-monthputwithastrikepriceof$20isat$.41.Whatisthecontinuouslycompoundedrisk-freerateofreturn?2.9percent3.0percent4.1percent3.7 percent3.2percentAcalloptionwithanexercisepriceof$25and9monthstoexpirationhasapriceof$4.92.Thestockiscurrentlypricedat$26.90,andtherisk-freerateis4.1percentperyear,compoundedcontinuously.Whatisthepriceofaputoptionwiththesameexercisepriceandexpirationdate?A)$3.89B)$1.57C)$1.24D)$2.69E)$2.26Whatisthevalueofa6-monthputwithastrikepriceof$27.50ifthestockpriceisthe6-month$27.50callispricedat$1.46,andtherisk-freerateis3.5percent,compoundedcontinuously?A)$4.71B)$5.43C)$5.24D)$5.88E)$6.62Astockispricedat$52.90ashare,the3-month$45callispricedat$9.31ashare,andrisk-freerateis4.5percent,compoundedcontinuously.Whatisthevalueofthe3-monthputwithastrikepriceof$45?A)$.57B)$.63C)$.91D)$1.36E)$1.54Astockiscurrentlypricedat$38.Acalloptionwithanexpirationofoneyearhasanexercisepriceof$40.Therisk-freerateis4.2percentperyear,compoundedcontinuously,andthestandarddeviationofthestock'sreturnisinfinitelylarge.WhatisthepriceofthecallA)$2.47B)$34.80C)$38.00D)$5.63E)$40.00Assumeastockpriceof$21.80,anexercisepriceof$20,threemonthstoexpiration,arisk-1freerateof3.40percent,standarddeviationof46percent,andadvalueof.52664.Whatisthe12valueofdA)2B).31225C).29664D)E).31340

asitisusedintheBlack-Scholesoptionpricingmodel?Assumeastockpriceof$34.80,anexercisepriceof$35,ninemonthstoexpiration,risk-free1rateof2.40percent,standarddeviationof57percent,andadvalueof.27167.Whatisthevalue12ofdasitisusedintheBlack-Scholesoptionpricingmodel?2A)−.22196B)−.18657C)−.18241D)−.27427E)−.222382Assumeastockpriceof$31.18,risk-freerateof3.6percent,standarddeviationof4421percent,1

)valueof.62789,andan

)valueof.54232.Whatisthevalueofa3-monthcalloptionwithastrikepriceof$30giventheBlack-ScholesoptionpricingA)$3.38B)$3.99C)$3.68D)$1.76E)$3.452Assumeastockpriceof$16.80,risk-freerateof2.7percent,standarddeviationof5921percent,1

)valueof.93116,andan

)valueof.85708.Whatisthevalueofa6-monthcallwithastrikepriceof$10giventheBlack-ScholesoptionpricingA)$7.62B)$7.19C)$8.06D)$7.85E)$6.97Astockiscurrentlysellingfor$39ashare.Therisk-freerateis2.5percentandthestandard1deviationis26percent.Whatisthevalueofdofa9-monthcalloptionwithastrikepriceof1$40?A)−.01506B).08341C).07746D).06420E)−.06752Astockiscurrentlysellingfor$34ashare.Therisk-freerateis3.1percentandthestandard1deviationis33percent.Whatisthevalueofdofa3-monthcalloptionwithastrikepriceof1$35?A)−.01872B)−.04621C)−.05047D)−.02950E)−.20356Usetheinformationbelowtoanswerthefollowingquestion.Assumeastockpriceof$42;arisk-freerateof3.5percentperyear,compoundedcontinuously;asix-monthmaturity;andastandarddeviationof64percentperyear.Ifasix-monthcallwithanexercisepriceof$45ispricedat$6.66,whatisthepriceofthesix-month$45put?A)$8.57B)$7.93C)$8.88D)$9.07E)$8.74Usetheinformationbelowtoanswerthefollowingquestion.YouownalotinKeyWest,Florida,thatyouareconsideringselling.Similarlotshaverecentlysoldfor$1.2million.Overthepastfiveyears,thepriceoflandintheareahasvariedwithastandarddeviationof19percent.Apotentialbuyerwantsanoptiontobuythelandinthenext9monthsfor$1,310,000.Therisk-freerateofinterestis7percentperyear,compoundedcontinuously.Howmuchshouldyouchargefortheoption?Roundyouranswertothenearest$100.A)$62,000B)$68,900C)$63,700D)$62,500E)$60,400Usetheinformationbelowtoanswerthefollowingquestion.Assumeastockpriceof$88;risk-freerateof4percentperyear,compoundedcontinuously;timetomaturityoffivemonths;standarddeviationof48percentperyear;andaputandcallexercisepriceof$85.Whatisthedeltaoftheputoption?A)−.6850B)−.3742C)−.3158D)−.0525E)−.4685Acalloptionmaturesinsixmonths.Theunderlyingstockpriceis$37andthestock'shasastandarddeviationof27percentperyear.Theannualrisk-freerateis3.4percent,compoundedcontinuously.Theexercisepriceis$0.Whatisthepriceofthecalloption?A)$39.65B)$32.14C)$36.37D)$32.23E)$37.00Thedeltaofacalloptiononafirm'sassetsis.624.Howmuchwillaprojectvaluedat$48,000increasethevalueofA)$18,048B)$45,336C)$29,952D)$76,923E)$32,189Thedeltaofacall