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are generally issued with a zero intrinsic value.
Employee stock options:
security market line
The ________ is a positively sloped linear function that plots securities' expected returns against their betas.
beta of 1
A ________ is the market's measure of systematic risk.
bearer form.
A bond that is payable to whomever has physical possession of the bond is said to be in:
a discount; less than
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
European
Darius purchased an option that he can exercise only on the final day of the option period. Which type of option did he purchase?
systematic
Most financial securities have some level of ________ risk.
employee stock options.
Natalie has been granted the right to buy 1,500 shares of her employer's stock at $18.50 per share five years from today, assuming she is still an employee of the firm at that time. Natalie has been granted:
Investors panic causing security prices around the globe to fall precipitously.
Of the options listed below, which is the best example of systematic risk?
wait
Once a project commences, management can select any of the following options except the option to:
expiration date
The final day on which an option can be exercised is called the:
risk-free rate
To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return.
Beta
________ measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset.
exercise price
An option's strike price is also called the:
has a right to buy but only on the expiration date.
Anqing is the holder of a European call option. Accordingly, he:
Yield to maturity < Coupon rate
Assume the current market price of a bond exceeds its par value. Which one of these equations applies?
Out of the money
Assume you own a November $27.50 call on DaronCo stock. Today is August 15 and the call has zero intrinsic value. Which one of the following best describes this option?
The option premium per share
Assume you purchase one call option contract on a stock that is currently selling for $12 per share. What is the maximum amount you can lose?
Call option intrinsic value
Current Stock Price - Call Strike Price.
market price
The current yield is defined as the annual interest on a bond divided by the:
right to sell
The owner of an American put option has the _____ an asset at a fixed price during a stated period of time.
can be exercised at any time prior to expiration while the European call can only be exercised on the expiration date.
The primary difference between an American call option and a European call option is the fact that the American call:
Abandonment
Three months ago, Toy Town introduced a new toy for preschool children. The store expected this toy to be an instant success and a fast-moving item. To their surprise, children have zero interest in this toy so sales have been abysmal. Which one of the following options should Toy Town consider in respect to this toy?
requires at least two NPV calculations as of Time 0
Valuing the option to wait:
the earning per share will decrease:
When warrants are exercised, the:
buying a put option.
When you purchase insurance you are in essence:
Spreading an investment across many diverse assets will eliminate some of the total risk.
Which of the following statements best describes the principle of diversification?
Reducing the number of stocks held in her stock portfolio
An investor wants to reduce the unsystematic risk in her portfolio. Which of the following actions is least likely to do so?
Which one of the following statements concerning convertible bonds is false?
Which of the following statements regarding convertible bonds is NOT true?
It can be effectively eliminated by portfolio diversification.
Which of the following statements regarding unsystematic risk is accurate?
Intrinsic value
Which one of the following terms applies to the value of an option on its expiration date?
Influence the actions and priorities of employees
Employee stock options are primarily designed to do which one of the following?
coupon rate decreases and the time to maturity increases.
In response to a change in the market rate of interest, the price sensitivity of a bond increases as the:
evaluation of the optimal time to commence a project.
The investment timing decision refers to the:
underlying stock price.
The maximum value of a call option can never exceed the:
It can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
Which of the following statements is true of a portfolio's standard deviation?
Greater of the strike price minus the stock price or zero
Which one of the following describes the intrinsic value of a put option?
Default risk
Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?
A decrease in the value of the underlying security
Which one of the following will decrease the value of an American call option?