Q&A Hero

Q: The current market price of a share of a stock is $80. If a put option on this stock has a strike price of $75, the put A. is in the money. B. is out of the money. C. sells for a lower price than if the market price of the stock is $75. D. is in the money and sells for a lower price than if the market price of the stock is $75. E. is out of the money and sells for a lower price than if the market price of the stock is $75.

Q: The current market price of a share of JNJ stock is $60. If a put option on this stock has a strike price of $55, the put A. is in the money. B. is out of the money. C. sells for a lower price than if the market price of JNJ stock is $50. D. is in the money and sells for a lower price than if the market price of JNJ stock is $50. E. is out of the money and sells for a lower price than if the market price of JNJ stock is $50.

Q: A call option on a stock is said to be at the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: A call option on a stock is said to be in the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: A call option on a stock is said to be out of the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: A put option on a stock is said to be at the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: A put option on a stock is said to be in the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: A put option on a stock is said to be out of the money if A. the exercise price is higher than the stock price. B. the exercise price is less than the stock price. C. the exercise price is equal to the stock price. D. the price of the put is higher than the price of the call. E. the price of the call is higher than the price of the put.

Q: The current market price of a share of IBM stock is $195. If a call option on this stock has a strike price of $195, the call A. is out of the money. B. is in the money. C. is at the money. D. None of the options are correct.

Q: The current market price of a share of MSI stock is $24. If a call option on this stock has a strike price of $24, the call A. is out of the money. B. is in the money. C. is at the money. D. None of the options are correct.

Q: The current market price of a share of CAT stock is $76. If a call option on this stock has a strike price of $76, the call A. is out of the money. B. is in the money. C. is at the money. D. None of the options are correct.

Q: The current market price of a share of Disney stock is $60. If a call option on this stock has a strike price of $65, the call A. is out of the money. B. is in the money. C. can be exercised profitably. D. is out of the money and can be exercised profitably. E. is in the money and can be exercised profitably.

Q: The current market price of a share of CSCO stock is $22. If a call option on this stock has a strike price of $20, the call A. is out of the money. B. is in the money. C. sells for a higher price than if the market price of CSCO stock is $21. D. is out of the money and sells for a higher price than if the market price of CSCO stock is $21. E. is in the money and sells for a higher price than if the market price of CSCO stock is $21.

Q: The current market price of a share of Boeing stock is $75. If a call option on this stock has a strike price of $70, the call A. is out of the money. B. is in the money. C. sells for a higher price than if the market price of Boeing stock is $70. D. is out of the money and sells for a higher price than if the market price of Boeing stock is $70. E. is in the money and sells for a higher price than if the market price of Boeing stock is $70.

Q: The current market price of a share of AT&T stock is $50. If a call option on this stock has a strike price of $45, the call A. is out of the money. B. is in the money. C. sells for a higher price than if the market price of AT&T stock is $40. D. is out of the money and sells for a higher price than if the market price of AT&T stock is $40. E. is in the money and sells for a higher price than if the market price of AT&T stock is $40.

Q: All else equal, call option values are higher A. in the month of May. B. for low dividend-payout policies. C. for high dividend-payout policies. D. in the month of May and for low dividend-payout policies. E. in the month of May and for high dividend-payout policies.

Q: All else equal, call option values are lower A. in the month of May. B. for low dividend-payout policies. C. for high dividend-payout policies. D. in the month of May and for low dividend-payout policies. E. in the month of May and for high dividend-payout policies.

Q: To adjust for stock splits A. the exercise price of the option is reduced by the factor of the split, and the number of options held is increased by that factor. B. the exercise price of the option is increased by the factor of the split, and the number of options held is reduced by that factor. C. the exercise price of the option is reduced by the factor of the split, and the number of options held is reduced by that factor. D. the exercise price of the option is increased by the factor of the split, and the number of options held is increased by that factor.

Q: A European put option can be exercised A. any time in the future. B. only on the expiration date. C. if the price of the underlying asset declines below the exercise price. D. immediately after dividends are paid.

Q: A European call option can be exercised A. any time in the future. B. only on the expiration date. C. if the price of the underlying asset declines below the exercise price. D. immediately after dividends are paid.

Q: An American call option can be exercised A. any time on or before the expiration date. B. only on the expiration date. C. any time in the indefinite future. D. only after dividends are paid. E. None of the options are correct.

Q: An American put option can be exercised A. any time on or before the expiration date. B. only on the expiration date. C. any time in the indefinite future. D. only after dividends are paid. E. None of the options are correct.

Q: A European put option allows the holder to A. buy the underlying asset at the striking price on or before the expiration date. B. sell the underlying asset at the striking price on or before the expiration date. C. potentially benefit from a stock price increase. D. sell the underlying asset at the striking price on the expiration date. E. potentially benefit from a stock price increase and sell the underlying asset at the striking price on the expiration date.

Q: An American put option allows the holder to A. buy the underlying asset at the striking price on or before the expiration date. B. sell the underlying asset at the striking price on or before the expiration date. C. potentially benefit from a stock price increase. D. sell the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase. E. buy the underlying asset at the striking price on or before the expiration date and potentially benefit from a stock price increase.

Q: A European call option allows the buyer to A. sell the underlying asset at the exercise price on the expiration date. B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration. D. buy the underlying asset at the exercise price on the expiration date. E. sell the option in the open market prior to expiration and buy the underlying asset at the exercise price on the expiration date.

Q: An American call option allows the buyer to A. sell the underlying asset at the exercise price on or before the expiration date. B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration. D. sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. E. buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

Q: The price that the writer of a put option receives for the underlying asset if the option is exercised is called the A. strike price. B. exercise price. C. execution price. D. strike price or exercise price. E. None of the options are correct.

Q: The price that the buyer of a put option receives for the underlying asset if she executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or execution price. E. strike price or exercise price.

Q: The price that the writer of a call option receives for the underlying asset if the buyer executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or exercise price. E. strike price or execution price.

Q: The price that the buyer of a call option pays for the underlying asset if she executes her option is called the A. strike price. B. exercise price. C. execution price. D. strike price or execution price. E. strike price or exercise price.

Q: The price that the writer of a put option receives to sell the option is called the A. premium. B. exercise price. C. execution price. D. acquisition price. E. strike price.

Q: The price that the buyer of a put option pays to acquire the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

Q: The price that the writer of a call option receives to sell the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

Q: The price that the buyer of a call option pays to acquire the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium.

Q: Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,700, and the index is now at 1,760. What will happen when you exercise the option? A. You will have to pay $6,000. B. You will receive $6,000. C. You will receive $1,700. D. You will receive $1,760. E. You will have to pay $7,000.

Q: Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option? A. You will have to pay $1,680. B. You will receive $1,720. C. You will receive $1,680. D. You will receive $4,000. E. You will have to pay $4,000.

Q: What happens to an option if the underlying stock has a 3-for-1 split? A. There is no change in either the exercise price or in the number of options held. B. The exercise price will adjust through normal market movements; the number of options will remain the same. C. The exercise price would become one-third of what it was, and the number of options held would triple. D. The exercise price would triple, and the number of options held would triple. E. There is no standard rule each corporation has its own policy.

Q: What happens to an option if the underlying stock has a 2-for-1 split? A. There is no change in either the exercise price or in the number of options held. B. The exercise price will adjust through normal market movements; the number of options will remain the same. C. The exercise price would become one-half of what it was, and the number of options held would double. D. The exercise price would double, and the number of options held would double. E. There is no standard rule each corporation has its own policy.

Q: To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher. A. more; more B. more; less C. less; more D. less; less E. It doesn't matter they are too risky to be included in a reasonable person's portfolio.

Q: An option with an exercise price equal to the underlying asset's price is A. worthless. B. in the money. C. at the money. D. out of the money. E. theoretically impossible.

Q: You purchased a call option for $3.45 17 days ago. The call has a strike price of $45, and the stock is now trading for $51. If you exercise the call today, what will be your holding-period return? If you do not exercise the call today and it expires, what will be your holding-period return? A. 173.9%, 100% B. 73.9%, 100% C. 57.5%, 173.9% D. 73.9%, 57.5% E. 100%, 100%

Q: Derivative securities are also called contingent claims because A. their owners may choose whether or not to exercise them. B. a large contingent of investors holds them. C. the writers may choose whether or not to exercise them. D. their payoffs depend on the prices of other assets. E. contingency management is used in adding them to portfolios.

Q: Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $100. If the risk-free rate is 5%, the stock price is $103, and the put sells for $7.50, what should be the price of the call? A. $17.50 B. $15.26 C. $10.36 D. $12.26 E. None of the options.

Q: Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $45. If the risk-free rate is 4%, the stock price is $48, and the put sells for $1.50, what should be the price of the call? A. $4.38 B. $5.60 C. $6.23 D. $12.26 E. None of the options.

Q: Trading in "exotic options" takes place primarily A. on the New York Stock Exchange. B. in the over-the-counter market. C. on the American Stock Exchange. D. in the primary marketplace. E. None of the options.

Q: Asian options differ from American and European options in that A. they are only sold in Asian financial markets. B. they never expire. C. their payoff is based on the average price of the underlying asset. D. they are only sold in Asian financial markets and they never expire. E. they are only sold in Asian financial markets and their payoff is based on the average price of the underlying asset.

Q: A callable bond should be priced the same as A. a convertible bond. B. a straight bond plus a put option. C. a straight bond plus a call option. D. a straight bond plus warrants. E. a straight bond.

Q: ING Stock currently sells for $38. A one-year call option with strike price of $45 sells for $9, and the risk-free interest rate is 4%. What is the price of a one-year put with strike price of $45? A. $9.00 B. $12.89 C. $16.00 D. $18.72 E. $14.27

Q: Common size balance sheets make it easier to compare firms A. with different degrees of leverage. B. of different sizes. C. in different industries. D. that use different inventory valuation methods (FIFO vs. LIFO).

Q: Common size income statements make it easier to compare firms A. that use different inventory valuation methods (FIFO vs. LIFO). B. in different industries. C. with different degrees of leverage. D. of different sizes.

Q: Common size financial statements make it easier to compare firms A. of different sizes. B. in different industries. C. with different degrees of leverage. D. that use different inventory valuation methods (FIFO vs. LIFO).

Q: To create a common size balance sheet, ____________ all items on the balance sheet by ____________. A. multiply; owners'equity B. multiply; total assets C. divide; owners'equity D. divide; total assets E. multiply; debt

Q: To create a common size income statement, ____________ all items on the income statement by A. multiply; net income B. multiply; total revenue C. divide; net income D. divide; total revenue E. multiply; COGS

Q: Which of the following are issues when dealing with the financial statements of international firms? I) Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U.S. firms. II) Many firms outside the U.S. use accelerated depreciation methods for reporting purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes. III) Intangibles, such as goodwill, may be amortized over different periods or may be expensed rather than capitalized. IV) There is no way to reconcile the financial statements of non-U.S. firms to GAAP. A. I and II B. II and IV C. I, II, and III D. I, III, and IV E. I, II, III, and IV

Q: Economic value added (EVA) is also known asA. excess capacity.B. excess income.C. value of assets.D. accounting value added.E. residual income.

Q: The dollar value of a firm's return in excess of its opportunity costs is called its A. profitability measure. B. excess return. C. economic value added. D. prospective capacity. E. return margin.

Q: The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because A. the DDM uses a different price in the numerator. B. the DDM uses different earnings measures in the denominator. C. the prices reported are not accurate. D. the people who construct the ratio from financial statements have inside information. E. They are not different this is a "trick" question.

Q: Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be ________, and its ROE will be ________. A. lower; lower B. higher; higher C. higher; lower D. lower; higher E. It is impossible to predict.

Q: Which of the financial statements recognizes only transactions in which cash changes hands? A. Balance sheet B. Income statement C. Statement of cash flows D. Balance sheet and income statement E. All of the options are correct.

Q: Proceeds from a company's sale of stock to the public are included in A. par value. B. additional paid-in capital. C. retained earnings. D. par value and additional paid-in capital. E. All of the options are correct.

Q: ______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities. A. Net Sales B. Operating Income C. Net Income D. Non-operating Income E. Earnings before interest and taxes

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's market-to-book value for 2009 is A. 0.7256. B. 1.5294. C. 2.9400. D. 3.6142.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on equity ratio for 2009 is A. 0.1235. B. 0.0296. C. 0.2960. D. 2.2960.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's return on sales ratio for 2009 is A. 0.0133. B. 0.1325. C. 1.325. D. 1.260.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's asset turnover ratio for 2009 is A. 1.60. B. 3.16. C. 3.31. D. 4.64.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's fixed asset turnover ratio for 2009 is A. 4.60. B. 3.61. C. 3.16. D. 5.46.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's inventory turnover ratio for 2009 is A. 4.64. B. 4.16. C. 4.41. D. 4.87. E. None of the options are correct.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's average collection period for 2009 is _______ days. A. 47.91 B. 48.53 C. 46.06 D. 47.65 E. None of the options are correct.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's times interest earned ratio for 2009 is A. 2.26. B. 3.16. C. 3.84. D. 3.31. E. None of the options are correct.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's leverage ratio for 2009 is A. 2.25. B. 3.53. C. 2.61. D. 3.06. E. None of the options are correct.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's quick ratio for 2009 is A. 1.68. B. 1.12. C. 0.72. D.1.92. E. None of the options are correct.

Q: The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements for Snapit Company. The firm's current ratio for 2009 is A. 1.98. B. 2.47. C. 0.65. D. 1.53. E. None of the options are correct.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's market-to-book value for 2009 is A. 0.24. B. 0.95. C. 0.71. D. 1.12.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's P/E ratio for 2009 is A. 4.74. B. 6.63. C. 5.21. D. 5.00.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on equity ratio for 2009 is A. 12.24%. B. 14.63%. C. 15.50%. D. 14.50%. E. 16.9%.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on sales ratio for 2009 is A. 20.2%. B. 21.6%. C. 22.4%. D. 18.0%.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2009 is A. 1.86. B. 0.63. C. 0.83. D. 1.63.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2009 is A. 1.45. B. 1.63. C. 1.20. D. 1.58.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2009 is A. 2.86. B. 1.23. C. 5.96. D. 4.42. E. 4.86.

Q: The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's average collection period for 2009 is A. 69.35. B. 69.73. C. 68.53. D. 67.77. E. 68.52.