101) D
Conversion value = ($1,000/$75)($72.40)
Conversion value = $965.33
102) E
Straight bond value = $60{[1 − (1/1.0648)]/.064} + $1,000/1.0648
Straight bond value = $975.55
Total warrant value = $1,000 − 975.55
Total warrant value = $24.45
Price per warrant = $24.45/5
Price per warrant = $4.89
Student name:
1) Grayson owns a stock that is currently trading for $37.20 per share. He is worried that the
price might decrease so he just purchased a put option on the stock with an exercise price of $37.
Which one of the following terms applies to this strategy?
1)
A) Put-call parity
B) Covered call
C) Protective put
D) Straddle
E) Strangle
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
AACSB : Reflective Thinking
Topic : Hedging with option contracts
Bloom's : Remember
,2) According to put-call parity, the present value of the exercise price is equal to the:
2)
A) stock price plus the call premium minus the put premium.
B) call premium plus the put premium minus the stock price.
C) stock price minus the put premium minus the call premium.
D) put premium plus the call premium minus the stock price.
E) stock price plus the put premium minus the call premium.
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Remember
3) In the put-call parity formula, the present value of the exercise price is computed using
the:
3)
A) nominal market rate.
B) real market rate.
C) real inflation rate.
D) nominal inflation rate.
E) risk-free rate.
,Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Understand
4) A(n) provides the option of selling a stock at a specified price on a stated date
even if the market price of the stock declines to zero.
4)
A) American call
B) European call
C) American put
D) European put
E) American put and a European put each
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Remember
5) The primary purpose of a protective put is to:
5)
, A) ensure a maximum purchase price in the future.
B) offset an equivalent call option.
C) limit the downside risk of asset ownership.
D) lock in a risk-free rate of return on a financial asset.
E) increase the upside potential return on an investment.
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
AACSB : Reflective Thinking
Topic : Hedging with option contracts
Bloom's : Understand
6) Which one of the following can be used to replicate a protective put strategy?
6)
A) Riskless investment and stock purchase
B) Stock purchase and call option
C) Call option and riskless investment
D) Riskless investment and writing a put
E) Call option, stock purchase, and riskless investment
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Understand
Conversion value = ($1,000/$75)($72.40)
Conversion value = $965.33
102) E
Straight bond value = $60{[1 − (1/1.0648)]/.064} + $1,000/1.0648
Straight bond value = $975.55
Total warrant value = $1,000 − 975.55
Total warrant value = $24.45
Price per warrant = $24.45/5
Price per warrant = $4.89
Student name:
1) Grayson owns a stock that is currently trading for $37.20 per share. He is worried that the
price might decrease so he just purchased a put option on the stock with an exercise price of $37.
Which one of the following terms applies to this strategy?
1)
A) Put-call parity
B) Covered call
C) Protective put
D) Straddle
E) Strangle
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
AACSB : Reflective Thinking
Topic : Hedging with option contracts
Bloom's : Remember
,2) According to put-call parity, the present value of the exercise price is equal to the:
2)
A) stock price plus the call premium minus the put premium.
B) call premium plus the put premium minus the stock price.
C) stock price minus the put premium minus the call premium.
D) put premium plus the call premium minus the stock price.
E) stock price plus the put premium minus the call premium.
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Remember
3) In the put-call parity formula, the present value of the exercise price is computed using
the:
3)
A) nominal market rate.
B) real market rate.
C) real inflation rate.
D) nominal inflation rate.
E) risk-free rate.
,Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Understand
4) A(n) provides the option of selling a stock at a specified price on a stated date
even if the market price of the stock declines to zero.
4)
A) American call
B) European call
C) American put
D) European put
E) American put and a European put each
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Remember
5) The primary purpose of a protective put is to:
5)
, A) ensure a maximum purchase price in the future.
B) offset an equivalent call option.
C) limit the downside risk of asset ownership.
D) lock in a risk-free rate of return on a financial asset.
E) increase the upside potential return on an investment.
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
AACSB : Reflective Thinking
Topic : Hedging with option contracts
Bloom's : Understand
6) Which one of the following can be used to replicate a protective put strategy?
6)
A) Riskless investment and stock purchase
B) Stock purchase and call option
C) Call option and riskless investment
D) Riskless investment and writing a put
E) Call option, stock purchase, and riskless investment
Question Details
Accessibility : Keyboard Navigation
Accessibility : Screen Reader Compatible
Difficulty : 1 Basic
Learning Objective : 25-01 Describe the relationship among stock prices, call prices, and put prices
Section : 25.1 Put-Call Parity
Topic : Put-call parity
AACSB : Reflective Thinking
Bloom's : Understand
