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QUIZ for Financial Management 1. Programmers, Inc. is selling 1,500 shares of stock through a Dutch auction. The bids they received are: How much

The common stock of Trynor's, Inc. is currently priced at $37.90 a share. One year from now, the stock price is expected to be either $38 or $43 a share. The risk-free rate of return is 3.5 percent. What is the current value of one call option on this stock if the exercise price is $40?
QUIZ for Financial Management 1. Programmers, Inc. is selling 1,500 shares of stock through a Dutch auction. The bids they received are: How much cash will Programmers, Inc. receive from selling these shares of stock? Ignore all transaction and flotation costs. 1 ? ? ? ? , ? ? ? ? ? 1500 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? : ? ? ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? A. $58,500 B. $60,000 C. $63,000 D. $66,800 E. $72,000 2. You currently own a one-year call option on Caspian Way stock. The current stock price is $38.70 and the risk- free rate of return is 3.85 percent. Your option has a strike price of $37.50 and you assume the option will finish in the money. What is the current value of your call option? 2 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 38.70 ? ? ? ? ? ? ? ? ? ? ? ? ? 3.85 ? ? ? ? ? ? ? ? ? ? ?   37.50 ? ? , ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? A. $1.20 B. $2.59 C. $3.07 D. $5.13 E. $7.27 A3. Employee stock options are designed: 3 ? ? ? ? ? ? ? ? ? ? ? : A. to be backdated to any desired date over the past year. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? B. to provide a large initial tax deduction to the employer. ? , ? ? ? ? ? ? ? ? ? ? ? ? ? C. to influence the actions and priorities of employees. ? , ? ? ? ? ? ? ? ? ? ? ? ? ? D. as a means of distributing excess cash to the employees. ? ? ? ? ? ? ? ? ? ? ? ? ? ? E. to be traded on the open market without incurring transaction costs. ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ? 4. The common stock of Trynor's, Inc. is currently priced at $37.90 a share. One year from now, the stock price is expected to be either $38 or $43 a share. The risk-free rate of return is 3.5 percent. What is the current value of one call option on this stock if the
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exercise price is $40? 4 ? ? ? ? ? Trynor ? , ? ? ? ? ? ? ? ? ? ? 37.90 ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? 38 ? ? 43 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 3.5 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ?   40 ? ? A. $0.64 B. $0.71 C. $0.77 D. $0.82 E. $0.91 5. Ted's Welding Shop has a pure discount bond with a face value of $5,000 that matures in one year. The risk-free rate of return is 4.5 percent. The assets of the business are expected to be worth either $4,800 or $5,200 in one year. Currently, these assets are worth $4,750.What is the current value of the bond? 5 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 5,000 ? ? ? ? ? ? , ? ? ? ? ? ? ? ? ? ? ? ? ? ? 4.5 ? ? ? ? ? ? ? ? ? ?   4,800 ? ? 5,200 ? ? ? ? ? ? ? , ? ? ? ? ? ?   $ 4,750 ? ? ? ? ? ? ? ? ? ? ? A. $4,006.13 B. $4,166.67 C. $4,268.11 D. $4,671.65 E. $4,784.69 6. The weighted average cost of capital for a firm is dependent upon the firm's: I. level of systematic risk. II. debt-equity ratio. III. preferred dividend amount. IV. outstanding bonds' yield to maturity. 6 ? ? ? ? ? ? ? ? ? ? ? ? , ? ? ? ? ? ? : ? , ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? A. I and III only B. II and IV only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV E 7.What is the key difference between an American call option and a European call option? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
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