Question 1

Which of the following statements is most
correct?

A. An option’s value is determined by its
exercise value, which is the market price of the stock less its strike
price. Thus, an option can’t sell for
more than its exercise value.

B. The
potential loss on a call option increases as the underlying stock sells at
higher and higher prices because the profit margin gets bigger.

C.
Issuing options provides companies with a low cost method of raising capital

D. The market value of an option
depends in part on the option’s time to maturity and on the variability of the
underlying stock’s price.

Question 2

An analyst is interested in using the
Black-Scholes model to value call options on the stock of QU, Inc. The analyst has accumulated the following
information:

Stock price

$40

Strike price

$40

Time until maturity

6
months

Standard deviation of the stock

12%

Risk free rate of return

16%

Using the Black-Scholes model, what is the
value of the call option?

A.
$1.94

B.
$0.30

C.
$3.76

D. $3.38

E. $2.12

.

Question 3

A ______ is a contract that requires the
holder to buy or sell a stated commodity at a specified price at a specified
time in the future.

A. option

B.
convertible contract

C.
futures

D.
warrant

.

Question 4

The intrinsic value of a call option equals
__________.

A. X-P0

B.
P0-X

C.
c0-(P0-X)

D.
p0-(X-P0)

.

Question 5

The price at which the stock or asset may
be purchased from (or sold to) the option writer is referred to as the
__________.

A.
option premium

B. open
interest

C.
exercise value

D.
strike price

.

Question 6

A stock is currently selling for $20. In three months (91 days), the stock price
will be either $30 or $11. If you are
considering a call option for this stock with an exercise price of $21, what
would be the value of this option today?
The risk free rate of return is 4.5%.

A.
$18.79

B.
$4.32

C.
$8.90

D.
$9.23

.

4 points

Question 7

Google’s closing price today was
$501.71. You think it’s now a bargain,
so you’re looking to buy a call option with a strike price of $600. Those LEAP things sound good, and you can get
a call with an expiration date of August 2015.
If GOOG’s standard deviation of returns is 25% annually and the
risk-free rate is 3.5%, what would be the value of the LEAP today?

A.
$49.05

B.
$132.24

C.
$57.73

D.
$0

.

Question 8

What is the exercise value of a 6-month put
option that has an exercise price of $50, a corresponding call option value of
$4.17 and a current market price of the underlying stock of $43.50? Assume that the annual risk-free rate is 5
percent.

A. $0

B.
$2.33

C.
$9.44

D.
$6.50

.

Question 9

You own a call option. The underlying common stock is selling for
$15 and the option’s exercise price is $12.
This option:

A.
must be sold to the call writer.

B. is
out-of-the-money.

C. must
be bought by the call holder.

D. is in-the-money.

.

Question 10

Considering each action independently and
holding other things constant, which of the following actions would reduce a
firm’s need for additional capital?

A.
an increase in the dividend payout ratio

B.
a decrease in the profit margin

C. a
decrease in expected sales growth

D. a
decrease in the accrual accounts (accrued wages and taxes)

.

Question 11

Which of the following statements is most
correct?

A.
One reason that companies tend to avoid stock repurchases is that
dividend payments are taxed more favorably than stock repurchases

B.
One advantage of dividend reinvestment plans is that they allow shareholders to
avoid paying taxes on the dividends that they choose to reinvest

C. If a
company announces a 2-for-1 stock split and the overall value of the firm
remains unchanged, the company’s stock price must have doubled

D.
None of the statements above is correct.

.

Question 12

Which of the following lists events in
chronological order from earliest to latest?

A.
Date of Record, Declaration Date, Ex-dividend Date

B. Date
of Record, Ex-dividend Date, Declaration Date

C.
Declaration Date, Date of Record, Ex-dividend Date

D. Declaration Date, Ex-dividend
Date, Date of Record

.

Question 13

How can a gold futures contract be used as
a hedge against a potential decrease in the price of gold for a firm that uses
gold in making computer chips?

A.
the company should sell gold futures contracts

B.
the company should buy gold futures contracts

C. this would be a situation that shouldn’t
be hedged

D.
the company should lower the price it pays for gold

.

Question 14

A futures trader who bets on the future
direction of prices by taking either a long or a short position is called a:

A.
hedger

B.
short seller

C.
speculator

D.
dealer

.

Question 15

Ledbetter’s Sweaters has a mutually
exclusive project; to produce and sell wool sweaters or to produce and sell
cashmere sweaters. The investment into
production of wool sweaters is $110,000.
The investment into cashmere sweaters is $125,000. The projects’ respective DCF’s given future
sales projections are:

What is the NPV of the wool line?

A.
$41,000

B.
$6,000

C.
$56,000

D.
$21,000

.

Question 16

It is now August 2013 (in case you
forgot). The cost to stage Pirates of
the Caribbean on Ice is $3 million. This
cost won’t be incurred until 2015. The
company will stage the show in 2016 and 2017, generating cash inflows of $2
million each year. In 2018, the show
will be cancelled at an overall net cost of $500,000. What is the IRR of this project?

A. 14.36%

B.
21.53%

C.
10.17%

D.
12.7%

.

Question 17

The _____ designates the date on which the
corporation lists the shareholders who are entitled to receive a dividend
payment.

A.
declaration date

B.
ex-dividend date

C. date
of record

D. payment date

.

Question 18

What is the fundamental purpose of a stock
split?

A. A
split shows the company’s preference for retaining funds.

B. A
split increases the threat of a hostile takeover.

C.
A split immediately increases the investor’s wealth.

D.
A split immediately brings the stock price to a lower trading range.

.

Question 19

Which of the following is a spontaneous
source of financing?

A.
accrued expenses

B.
notes payable

C.
common stock

D.
retained earnings

.

Question 20

Which of the following accounts would not
normally or be least likely to increase in proportion with a planned increase
in sale?

A.
Accounts receivable

B.
Inventory

C.
Accounts payable

D.
Accrued expenses

E. Notes payable

.

Question 21

Which of the following dividend policies
would cause dividends per share to fluctuate the least?

A.
Constant Payout Ratio

B.
Constant Dollar

C.
Small regular plus special

D. Residual Dividend Method

.

Question 22

The first step involved in predicting a
firm’s financial needs is

A.
projecting the firm’s sales and expenses over the planning period

B. estimating the levels of
investment in current and fixed assets that are necessary to support the
projected sales

C.
determining the firm’s financing needs throughout the planning period

D. none of the above

.

Question 23

Which of the following is not consistent
with the life cycle theory of a dividend policy?

A.
In the maturing stage, a company should pay dividends

B. In
the infancy stage, a company should pay dividends

C. In
the declining stage, a company should pay dividends

D. In the growth stage, a company
could pay a low dividend

.

Question 24

Norman Necktie Company’s balance sheet
showed the following as of December 31:

Cash

$800

Accounts payable

$350

Accounts receivable

450

Accruals

150

Inventory

950

Notes payable

2000

Total current assets

$2200

Total current liabilities

$2500

Net fixed assets

$34000

LT
debt

$26500

Common
stock

3200

Retained earnings

4000

Total assets

$36200

Total liabilities & equity

$36200

The company expects sales to double, from
$10,000 to $20,000. Net income is
anticipated to be $1000. Current assets, accounts payable and accruals will
grow in proportion to sales. There is
no anticipated change in net fixed assets.
Will the company need any additional funds, if there are no dividends
paid next year? If so, how much?

A.
No, $0

B.
Yes, $7,700

C. Yes,
$1,700

D.
Yes, $700

.

Question 25

Albany Motors recently completed a 3-for-1
stock split. Prior to the split, the company had 10 million shares outstanding
and its stock price was $150 per share. After the split, the total market value
of the company’s stock equaled $1.5 billion. What was the price of the company’s
stock following the stock split?

A.
$15

B. $45

C. $450

D. $50

E. $150