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Unformatted text preview: SAMPLE TEST FOR BUAD 306 FINAL Please note that this sample test only covers Chapters 14 through 17. For sample questions on earlier chapters, please refer to Sample Test 1 and Sample Test 2. Please note that the actual test will have 30 to 40 questions. The actual test will have a slight emphasis on Chapters 14 through 18. You should expect numerical questions from Chapters 2 through 13. d 1. An option based on an underlying asset such as a building or land is called a _____ option. a. financial b. liquid c. fixed d. real e. tangible c 2. Jeff opted to exercise his August option on August 10 and received $2,500 in exchange for his shares. Jeff must have owned a (an): a. warrant. b. American call. c. American put. d. European call. e. European put. c 3. Which of the following statements are correct concerning option values? I. The value of a call increases as the price of the underlying stock increases. II. The value of a call decreases as the exercise price increases. III. The value of a put increases as the price of the underlying stock increases. IV. The value of a put decreases as the exercise price increases. a. I and III only b. II and IV only c. I and II only d. II and III only e. I, II, and IV only e 4. You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of: a. put; $62,000. b. put; $50,000. c. warrant; $62,000. d. call; $62,000. e. call; $50,000. d 5. Which of the following statements are correct concerning convertible bonds? I. New shares of stock are issued when a convertible bond is converted. II. A convertible bond is similar to a bond with a put option. III. A convertible bond should never be worth less than its straight bond value. IV. A convertible bond can be described as having upside potential with downside protection. a. I and III only 1 b. II and IV only c. I, II, and III only d. I, III, and IV only e. II, III, and IV only e 6. What is the cost of five November 25 call option contracts on KNF stock given the following price quotes? KNJ (KNJ) Underlying stock price: 30.86 Call Put Expiration Strike Last Last Aug 25 6.15 .05 Nov 25 6.60 .10 Aug 35 .10 4.60 Nov 35 .70 5.10 a. $615 b. $660 c. $2,500 d. $3,075 e. $3,300 c 7. You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investment? a. $60 b. $320 c. $360 d. $420 e. $540 b 8. Three months ago, you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment?...
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This note was uploaded on 05/26/2008 for the course BUAD 306 taught by Professor Selvili during the Spring '07 term at USC.
- Spring '07