1) The intrinsic value of an option to buy stock (i.e., a call option) is the difference
between the price of the stock and the per share exercise price of the option.
2) If speculators anticipate interest rates will rise, they enter into contracts to sell bonds.
3) The value of a put is inversely related to the value of the underlying stock.
4) Since bonds are legal obligations, their prices are determined when issued and do not
change.
5) The hedge ratio is one piece of information given by the Black/Scholes option
valuation model.
6) The quick ratio excludes inventory, plant, and equipment.
7) Dividend reinvestment plans are a means to postpone federal income tax on
dividends.
8) The income earned by a mutual fund is taxed through the stockholders’ income tax
returns.
9) If a stock’s return has a large standard deviation, that suggests the stock has little risk.
10) An increase in assets financed by equity increases the debt ratio.
11) If a firm expects to buy a commodity in the future, it may hedge against a price
increase by taking a short position in the futures contract.
12) The premium paid over a convertible bond’s value as stock tends to fall as the price
of the stock rises.
13) If inventory is sold for cash, inventory turnover is increased, but inventory turnover
is not affected if inventory is sold on credit.
14) Behavioral finance asserts that emotional investing produces higher returns.
15) The Dow Theory considers price movements in the Dow Jones industrial and
transportation averages.