Finance Chapter 23 2 Convertible Bond Has Conversion Ratio

58.

A 10% convertible bond has a conversion ratio of 25. The firm’s common stock is currently selling at $35. If the bond is

about to mature, what is its value?

59.

Which one of the following statements is correct?

60.

A put and a call both have the same maturity and both have an exercise price which is equal to the current stock price. The

interest rate is 5%. Which option should sell for a higher price?

61.

Which one of the following is correct for the owner of a June call on XYZ Corp. with an exercise price of $60? XYZ Corp.

currently trades at $55 and the option at $3.

62.

It is May and you own a June call on ABC Corp. with an exercise price of $50. The option trades at $40 and ABC is trading

at $86. What should you do?

63.

At what point does the value of a call option lie furthest above its lower bound (that is, the maximum of zero or the stock

price − exercise price)?

64.

You own a September put on CBA Corp. with an exercise price of $80. CBA stock currently trades at $80 and the put at $5.

Which of the following is definitely true?

65.

The buyer of a put option has a(n) _____ to sell the underlying asset and the option seller has a(n) ____ to buy the underlying

asset.

66.

Joe sold a put option on ZZZ Corp. with an exercise price of $40. The option is about to expire and ZZZ stock is currently

67.

Maria sold a call option on XXX Corp. with an exercise price of $50. The option is about to expire and stock XXX is

currently trading at $40. What is the value of Maria’s position?

68.

The payoffs from investing in an option contract are designed so that:

69.

Under what circumstance will the buyer of a put option need to fulfill her obligation?

70.

Which one of the following statements is correct for an investor who has purchased portfolio insurance by owning a stock

and buying a put option on that stock?

71.

A call option will have the highest value when the stock price is:

72.

When does a change in the value of a call option come closest to matching the change in the price of the stock?

73.

At what point is the dollar payoff from owning a call option on a stock greater than the payoff from owning the stock itself?

74.

What is the lower bound on the value of a put option?

75.

The value of a call option increases as the time to expiration increases because:

76.

Stocks that have more volatile price changes have more valuable call options because call holders:

77.

Of the following four put options that can be purchased on a stock, which would you expect to have the highest price? (All

option months are in the same calendar year.)

78.

A share of stock is currently priced at $20 and will change with equal likelihood to either $40 or $10. A call option with a

$20 exercise price is available on the stock. The interest rate is zero. Which of the following positions will provide

(approximately) the same payoffs as the option?

79.

Which of the following is not a real option?

80.

Real options are:

81.

Corporations that attach warrants to their bonds are hoping to:

82.

If a convertible bond can be thought of as a straight bond with a call option, then the call is owned by the _____, and the

exercise price is the _____.

83.

Why should a convertible bond always be valued at more than its bond value or its conversion value up until maturity?

84.

A 10-year convertible bond has a face value of $1,000, a 9% coupon, and a conversion ratio of 30. The stock is currently

priced at $35. If a comparable straight bond would have a yield of 9%, what is the minimum value of the call option

provided by the convertible?

85.

Which one of the following is correct?

86.

The value of a call option at expiration will be equal to the maximum of zero or the:

87.

Kingston Lisle shares are currently selling at $75. The value of a call option on the company’s shares with an exercise price

of $60 and several months to expiration is:

88.

You purchased a call option with an exercise price of $50. If you exercise the option when the stock price is $60, your

proceeds will be:

89.

Three months ago you bought a put option with an exercise price of $100. What is the value of this option at expiration if the

stock price is $110?

90.

A firm is planning to issue a callable bond with a coupon rate of 8% and 10 years to maturity. A straight bond with a similar

coupon is priced at $1,000. If the value of the issuer’s call option is $60, what is the value of the callable bond?

91.

A stock is selling for $85 at the expiration of an option contract. Which of the following options on the stock will most likely

be exercised?

92.

Which one of the following changes will reduce the value of a call option?

93.

An investor who sells a put option profits if:

94.

A call option has an exercise price of $60. When the option expires, the price of the stock is exactly $60. What is the value of

your call option?

95.

The value of a put at expiration is defined as the:

96.

You purchased a stock for $36 a share, a call option with an exercise price of $35, and a put option with an exercise price of

$34. What will be the value of your position when the options expire if the stock price is $37?

97.

You purchased a stock for $43 a share, sold a call option with an exercise price of $40, and bought a put option with an

exercise price of $45. What will be the value of your position when the options expire if the stock price is $48 a share?

98.

You purchased a stock and a put option on the stock with an exercise prices of $40 a share. What will be the value of your

position when the option expires if the stock price is $28 a share?

99.

If you sell a put option, your maximum payoff is equal to:

Chapter 23 Test bank – Static Summary