Fin 534 Week 11 Final Guide Help Chapter 1 to 22 Essay examples

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FIN 534 Week 11 Final Guide Help Chapter 1 to 22
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TRUE/FALSE An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time. The strike price is the price that must be paid for a share of common stock when it is bought by exercising a warrant. The exercise value is the positive difference between the current price of the stock and the strike price. The exercise value is zero if the stock’s price is below the strike price. The exercise value is also called the strike
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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, provided the strike prices for the put and call are the same. If a company announces a change in its dividend policy from a zero target payout ratio to a 100% payout policy, this action could be expected to increase the value of long-term options (say 5-year options) on the firm’s stock. MULTIPLE CHOICE An option that gives the holder the right to sell a stock at a specified price at some future time is
a. a put option.
b. an out-of-the-money option.
c. a naked option.
d. a covered option.
e. a call option. Other things held constant, the value of an option depends on the stock’s price, the risk-free rate, and the
a. Variability of the stock price.
b. Option’s time to maturity.
c. Strike price.
d. All of the above.
e. None of the above.

Which of the following statements is most correct, holding other things constant, for XYZ Corporation’s traded call options?
a. The higher the strike price on XYZ’s options, the higher the option’s price will be.
b. Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.
c. If XYZ’s stock price stabilizes (becomes less volatile), then the price of its options

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