Investments Final

Each listed stock option contract gives the holder the right to buy or sell _____ shares of stock 1 10 100 1,000

100

A stock with a current market price of $50 and a strike price of $45 has an associated call option priced at $6.50. This call has an intrinsic value of ______ and a time value of _____. 5; 1.50 1.50; 5 0, 6.50 6.50, 0

5, 1.50

in 1973, trading of standardized options on a national exchange started on AMEX CBOE NYSE CFTC

CBOE

The SEC requires public U.S companies to file registration statements and periodic reports electronically through Yahoo google EDGAR FINRA

EDGAR

New economy companies generally have higher _______ than old economy companies book value per share P/E multiples profits asset values

P/E multiples

Value stocks are more likely to have a PEG ratio less than 1 equal to 1 more than 1 less than zero

`less than 1

A company with an expected earnings growth rate which is greater than that of the typical company in the same industry most likely has _____ a dividend yield which is greater than that of a typical company a dividend yield which is less than that of a typical company less risk than a typical company less sensitivity to market trends than the typical company

a dividend yield which is less than that of a typical company

________ option can only be exercised on the expiration date A mexican An asian an american a european

a european

The writer of a put option agrees to sell shares at a set price if the option holder desires it agrees to buy shares at a set price if the option holder desires it has the right to buy shares at a certain price has the right to sell shares at a certain price

agrees to buy shares at a set price if the option holder desires it

A __________ is an option valuation model based on the assumption that stock prices can move to only two values over any short time period. nominal model binomial model time model black-scholes model

binomial model

You invest in the stock of Rayleigh Corp. and write a call option on Rayleigh corp. This strategy is called covered call long straddle naked call money spread

covered call

Generally speaking, as a form progresses through the industry life cycle, you would expect the PVGO to ______ as a percentage of share price increase decrease stay the same no typical pattern can be expected

decrease

A writer of a call option will want the value of the underlying asset to __________, and a buyer of a put option will want the value of the underlying asset to _________. decrease, decrease decrease, increase increase, decrease increase, increase

decrease, decrease

A high dividend payout will ______ the value of a call option and ______ the value of a put option. increase; decrease increase; increase decrease; increase decrease; decrease

decrease; increase

A firm cuts its dividend payout ratio. As a result, you know that the firm's return on assets will increase earnings retention ratio will increase earnings growth rate will fall stock price will fall

earnings retention ratio will increase

The term "residual claimant" refers to bond holders option holders equity/shareholders suppliers

equity/shareholders

An underpriced stock provides an expected return that is _________ the required return based on the capital asset pricing model less than equal to greater than greater than or equal to

greater than

The value of internet companies is based primarily on current profits tobin's q growth opportunities replacement cost

growth opportunities

The constant growth dividend discount model can be used only when the growth rate is less than or equal to the required return growth rate is greater than or equal to the required return growth rate is less than the required return growth rate is greater than the required return

growth rate is less than the required return

All else equal, call option values are _____ if the _____ is lower. higher; stock price higher; exercise price lower; dividend price higher; lower volatility

higher; exercise price

According to the Black-Scholes option-pricing model, two options on the same stock but with different exercise prices should always have the same price expected return implied volatility maximum loss

implied volatility

A put option on Dr. Pepper Snapple group, Inc. has an exercise price $45. The current stock price is $41. The put option is at the money in the money out of the money knocked out

in the money

Investor A bought a call option, and investor B bought a put option. All else equal, if the underlying stock price volatility increases, the value of investor A's position will ______ and the value of investor B's position will _______. increase; increase increase; decrease decrease; increase decrease; decrease

increase; increase

The __________ is the stock price minus exercise price, or the profit that could be attained by immediate exercise of an in-the-money call option. intrinsic value time value stated value discounted

intrinsic value

The initial maturities of the most exchange traded options are generally less than 1 year less than 2 years between 1 and 2 years between 1 and 3 years

less than 1 year

_______ is the amount of money per common share that could be realized by breaking up the firm, selling its assets, repaying its debt, and distributing the remainder to shareholders book value per share liquidation value per share market value per share tobin's q

liquidation value per shar

Which one of the following is a common term for the market consensus value of the required return on a stock dividend payout ratio intrinsic value market capitalization rate plowback ratio

market capitalization rate

You purchase a call option on a stock. The profit at contract maturity of the option position is_______< where X equals the options strike price, St is the stock price at contract expiration, and C0 is the original purchase price of the option max (-Co, St-X-Co) min (-Co, St-X-Co) max (Co, St-X-Co) min (Co, St-X-Co)

max (-Co, St-X-Co)

At contract maturity the value of a call option is _______ where X equals the options strike price and St is the stock price at contract Max (0, ST-X) min (0, St-X) max (0, X-St) min (0, X-St)

max (0, St-X)

All else the same, an american style option will be ______ valuable than a _____ style option more; european less; european more; canadian less; canadian

more; european

Which one of the following statements about market and book values is correct All firms sell at a market to book ratio above 1 All firms sell at a market to book ratio greater than or equal to 1 All firms sell at a market to book ratio below 1 Most firms have a market to book above 1, but not all

most firms have a market to book above 1, but not all

Before expiration, the time value of an out-of-the-money stock option is __________. equal to the stock price minus the exercise price equal to zero negative positive

positive

You invest in the stock of Valleyville Corp. and purchase a put option Valleyview corp. This strategy is called a long straddle naked put protective put short stroll

protective put

If you have an extremely "bullish" outlook on the stock market, you could attempt to maximize your rate of return by ________________. purchasing out of the money call options purchasing at the money bull spreads purchasing in the money call options purchasing at the money call options

purchasing out of the money call options

An american put option gives its holder the right to buy the underlying asset at the exercise price on or before the expiration date buy the underlying asset at the exercise price only at the expiration date sell the underlying asset at the exercise price on or before the expiration date sell the underlying assets at the exercise price only at the expiration date

sell the underlying asset at the exercise price on or before the expiration date

What combination of variables is likely to lead to the lowest time value? short time to expiration and low volatility long time to expiration and high volatility short time to expiration and high volatility long time to expiration and low volatility

short time to expiration and low volatility

The price to sales ratio is probably most useful for firms in which phase of the industry life cycle start up phase consolidation maturity relative decline

start up phase

The delta of an option is __________. the change in the dollar value of an option for a dollar change in the price of the underlying asset the change in the dollar value of the underlying asset for a dollar change in the call price the percentage change in the value of an option for a 1% change in the value of the underlying asset the percentage change in the value of the underlying asset for a 1% change in the value of the ca

the change in the dollar value of an option for a dollar change in the price of the underlying asset

Exchange traded stock options expire on the _______ of the expiration month second monday third wednesday second thursday third friday

third friday

The _________ is the difference between the actual call price and the intrinsic value. stated value strike value time value binomial value

time value

The potential loss for a writer of a naked call option on a stock is equal to the call premium larger the lower the stock price limited unlimited

unlimited

In what industry are investors likely to use the dividend discount model and arrive at a price close to the observed market price import/export trade software telecommunications utility

utility

Each of two stocks, A and B, is expected to pay a dividend of $7 in the upcoming year. The expected growth rate of dividends is 6% for both stocks. You require a return of 10% on stock and a return of 12% on stock B. Using the constant growth DDM, the intrinsic value of stock A will be higher than the intrinsic value of stock B will be the same as the intrinsic value of stock B will be less than the intrinsic value of stock B the answer cannot be determined from the information given

will be higher than the intrinsic value of stock B

A stock has an intrinsic value of $15 and an actual stock price of $13.50. You know that this stock has a tobin's q value <1 will generate a positive value has an expected return less than its required return has a beta >1

will generate a positive alpha

A call option with several months until expiration has a strike price of $55 when the stock price is $50. The option has _____ intrinsic value and _____ time value. negative; positive positive; negative zero; zero zero; positive

zero; positive