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Chapter 24
Options and Corporate Finance
Multiple Choice Questions
1.
Which one of the following grants its owner the right to buy or to sell an
asset at a prespecified price at any time during a stated period?
2.
Elizabeth owns a call option on 100 shares of Microsoft stock. She has
decided to buy those shares. This purchase is commonly referred to as:
3.
Marti owns an option that allows him to purchase ABC stock at $50 a share.
The $50 price is referred to as the:
4.
What is the final day on which an option can be exercised called?
5.
Felicia purchased an option which she can exercise anytime within the next
six months. Which type of option did she purchase?
6.
Brad purchased an option that he can only exercise on the final day of the
option period. Which type of option did he purchase?
7.
Which of the following grants its owner the right to purchase an asset at a
stated price?
I. American call
II. European call
III. American put
IV. European put
8.
The owner of a put option has the _____ an asset at a fixed price during a
stated period of time.
9.
Which one of the following terms applies to the value of an option on its
expiration date?
10.
Suzie is the controller of The Price Rite Company. She has been granted the
right to buy 1,000 shares of her employer's stock at $25 a share anytime
within the next three years. Which one of the following has Suzie been
granted?
11.
Which one of the following terms applies to an option that has an office
building as its underlying asset?
12.
The investment timing decision is the:
13.
Lucas Enterprises recently opted to open a new retail outlet. If the outlet
outperforms the expectations, the manager can opt to increase the store's
size. If it underperforms, the manager can opt to close the store. These
choices that the manager has been given are called:
14.
Which one of the following considers all of the options implicit in a project?
15.
KT Enterprises has expanded its operations into a new field, which is the
production of everyday dinnerware. If this project goes well, the firm has the
option to expand its production into fine china. What type of option is this?
16.
Amy is a current shareholder of DJ Industries. She has been given the right
to purchase an additional 25 shares of DJ Industries stock at a price of $32
a share if she exercises that right within the next 12 months. What is this
security called that Amy has been given?
17.
Jeff owns a $1,000 face value bond. He can exchange that bond for 25
shares of KNJ stock at any time within the next 2 years. What type of bond
does Jeff own?
18.
The dollar amount of a bond's par value that is exchangeable for one share
of stock is called the:
19.
Alicia owns a $1,000 face value bond that can be converted into 20 shares
of AB Limited stock. Which one of the following terms refers to these 20
shares?
20.
The difference between the conversion price and the current stock price,
divided by the current stock price, is called the:
