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15 Cards in this Set

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What is the method (Formula) in solving for an Option's Time Value?
Time Value of Options
Premium 3
Minus Intrinsic Value 2
Equals Time Value 1
What is the Method (Formula) in converting a convertible bond to stock?
Bond's Par Value
Divided by conversion price

Ex: 1000pv/40cp=25 shares of stock
What is the Method (Formula)to determine conversion parity?
1.Determine the Conversion Ratio of shares per bond. (see bond conversion ratio).
2. Determine the conversion value of the stock. To be at parity (equal), the bond should equal its conversion value.

Shares x stock's market value = Parity Price of Bond. issues a convertible bond with a conversion price of $15 per share. If the current market price of the bond is 110 ($1,100), then what would the stock have to be selling at to be at parity with the bond?
A. $22.00
B. $14.66
C. $16.00
D. $16.50
What are the equity components that constitute Outstanding Stock?
Issued Stock + Treasury Stock = Outstanding Stock.
What is the formula/method for determining the time of an Option Contract?
Option Premium - Intrinsic Value + Time Value
What is the Intrinsic Value of an Option?
The amount an otion is in-the-money.
What two components make up the Premium of an Option?
Intrinsic Value and Time Value.
What is the definition of Time Value of an Option?
Time Value is the portion of an option's premium in excess of its intrinsic value remembering that the intrinsic value is that portion of the option that is in-the-money.
When is a call option in-the-money?
When the market value of the underlying stock is above or greater than the strike price of the call.
When is a put option in-the-money?
When the market price of the underlying stock is below the strike prince of the put option.
If AMR stock is currently trading for $41.50 per share, all the following options are in-the-money EXCEPT the:
a. AMR December 40 call
b. AMR January 45 call
c. AMR January 45 put
d. AMR February 50 Put
If AMR stock is trading at $25.50 per share and the December 20 cals have a premium of 6, what is the time value of the AMR December 20 calls?
a. 0
b. .50
c. 5.50
d. 6
An investor will be in a position to acquire stock if the investor is the:
I. Buyer of a call
II. Buyer of a put
III Seller of a call
IV. Seller of a put
A put gives the holder the right to:
a. Buy 100 shares of the underlying stock from the writer at the strike price
b. Sell 100 Shares of the underlying stock to the writer at the strike price
c. Receive 100 shares of the underlying stock at the strike price
d. Liquidate the put in the market at the strike price