Fin 534 Final Exam

FIN 534 Final Exam

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FIN 534 Final Exam

FIN 534 Week 11 Final Exam Solution Two Versions of Latest Exam + (Hundreds of extra possible questions with answers)

FIN 534 Final Exam Part 1 and Part 2 Solution

Version 1

Part 1

1. Which of the following statements is CORRECT?

Call options generally sell at a price less than their exercise value.

If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock’s price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

2. Suppose you believe that Florio Company’s stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio’s stock price actually dropped to $60, what would your pre-tax net profit be?

-$5.10

$19.90

$20.90

$22.50

$27.60

3. An option that gives the holder the right to sell a stock at a specified price at some future time is

a put option.

an out-of-the-money option.

a naked option.

a covered option.

a call option.

4. Which of the following statements is CORRECT?

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its...