Question 1

A stock is currently selling for $28 a share. The risk-free rate is 4.5 percent and the standard deviation is 35 percent. What is the value of d₁of a 3-month call option with a strike price of $25?

Accepted Answer

The answer of A stock is currently selling for $28...

Question 2

A stock is currently selling for $43 a share. The risk-free rate is 6 percent and the standard deviation is 30 percent. What is the value of d₁of a 6-month call option with a strike price of $45?

Accepted Answer

The answer of A stock is currently selling for $43...

Question 3

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 7 percent. The current price of the stock is $21.24. What is the conversion value of this bond?

Accepted Answer

The conversion value of a bond is calculated by multiplying the current price of the stock by the number of shares into which the bond can be converted. The conversion ratio is the face value of the bond divided by the conversion price. Here, the conversion ratio is $1,000 / $22.50 = 44.4444 shares. The conversion value is then 44.4444 shares * $21.24 (current stock price) = $944.00.

Question 4

On a given day, the rights to buy 160,000 shares of stock at a stated price by a stated date were traded. The newspaper would list the volume of options traded on that day as:

Accepted Answer

Options are typically listed in contracts, with each contract representing 100 shares. Therefore, 160,000 shares would be represented by 1,600 contracts.

Question 5

Suppose an all-equity firm has a value of $10,000 and 100 shares outstanding. The firm has issued 25 warrants, each of which may be exchanged for one share. The warrants have an exercise price of $75. If the firm will be worth $9,800 in one period (before exercise), what will the price of the shares be assuming the warrants are exercised?

Accepted Answer

The total value of the firm after the exercise of the warrants will be $9,800 + (25 * $75) = $11,675. There will be 125 shares outstanding (100 original shares + 25 new shares from the exercise of warrants). The price per share will be $11,675 / 125 = $93.40.

Question 6

A convertible bond has a face value of $1,000 and a conversion price of $20. The bond has a 7 percent coupon and pays interest semi-annually. The bond matures in 8 years. Similar bonds are yielding 7.5 percent. The current price of the stock is $19.74. What is the straight bond value?

Accepted Answer

The straight bond value can be calculated using the present value of the bond's future cash flows, which include the semi-annual interest payments and the principal repayment at maturity. Given a 7 percent annual coupon on a $1,000 face value bond, the semi-annual coupon payment is $35 ($1,000 * 7% / 2). The bond matures in 8 years, so there are 16 semi-annual periods. The market yield of similar bonds is 7.5 percent annually, or 3.75 percent semi-annually. The present value of the bond's cash flows can be calculated using the formula for the present value of an annuity for the coupon payments, plus the present value of a lump sum for the face value repayment at maturity. The calculation is as follows:$$ \text{Present Value of Coupons} = C \times \left( \frac{1 - (1 + r)^{-n}}{r} \right) $$$$ \text{Present Value of Face Value} = F / (1 + r)^n $$Where:- $C$ is the semi-annual coupon payment ($35),- $r$ is the semi-annual market yield (3.75% or 0.0375),- $n$ is the total number of semi-annual periods (16),- $F$ is the face value of the bond ($1,000).$$ \text{Present Value of Coupons} = 35 \times \left( \frac{1 - (1 + 0.0375)^{-16}}{0.0375} \right) $$$$ \text{Present Value of Face Value} = 1000 / (1 + 0.0375)^{16} $$$$ \text{Present Value of Coupons} \approx 439.62 $$$$ \text{Present Value of Face Value} \approx 530.70 $$Adding these two components gives the straight bond value:$$ \text{Straight Bond Value} \approx 439.62 + 530.70 = 970.32 $$Therefore, the correct answer is $970.32.

Question 7

If d₁ = -1.52 in the Black-Scholes formula, what is the value for N(d₁)?

Accepted Answer

N(d1) represents the cumulative distribution function of the standard normal distribution for d1. For d1 = -1.52, N(d1) is approximately 0.0643.

Question 8

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest annually. The face value of the bond is $1,000 and the conversion price is $16.67. Similar bonds have a market return of 9 percent. The current price of the stock is $17.50. What is the straight bond value?

Accepted Answer

The straight bond value is the present value of the future cash flows from the bond, which includes the annual coupon payments and the face value at maturity. The present value of the future cash flows can be calculated using the following formula:PV = C * (1 - (1 + r)^-n) / r + FV / (1 + r)^nwhere:PV is the present valueC is the annual coupon paymentr is the market returnn is the number of years to maturityFV is the face valueIn this case, the annual coupon payment is $80 (8% * $1,000), the market return is 9%, the number of years to maturity is 3, and the face value is $1,000. Plugging these values into the formula, we get:PV = $80 * (1 - (1 + 0.09)^-3) / 0.09 + $1,000 / (1 + 0.09)^3PV = $974.69Therefore, the straight bond value is $974.69.

Question 9

A $1,000 face value 7% convertible bond pays interest semi-annually and has a maturity date of five years. The conversion price is $40. The market yield on nonconvertible debentures of comparable quality is 8%. The market price of the common stock is $38.50 currently. What is the minimum price at which the convertible bond should sell?

Accepted Answer

The minimum price of the convertible bond is the higher of its conversion value and its straight bond value. The conversion value is calculated as (1000/40) * 38.50 = $962.50. The straight bond value is calculated using the market yield of 8% for nonconvertible bonds. Since the conversion value is higher, the minimum price is $962.50.

Question 10

What is the minimum value of this bond if the current stock price is $69.50 per share?

Accepted Answer

The minimum value of a convertible bond is typically the greater of its investment value (as a bond) or its conversion value (as stock). Without specific details on the bond's interest rate, maturity, or the conversion ratio, we can't calculate the investment value. However, the conversion value can be inferred if we know the current stock price and the conversion ratio. Given only the current stock price ($69.50) and without the conversion ratio or other bond details, we cannot precisely calculate the minimum value. Therefore, without additional information, we cannot provide a detailed explanation for the correct answer. My response was based on the assumption that more information was provided or implied in the question setup, which led to a specific choice being correct. However, without details on the bond's terms or the context implying how to determine the minimum value, the correct answer cannot be determined from the information given.

Question 11

What is the value of d₂given the following information on a stock?

Accepted Answer

The answer of What is the value of d₂given...

Question 12

Given the following information, what is the value of d₂as it is used in the Black- Scholes Option Pricing Model?

Accepted Answer

The answer of Given the following information, what is the...

Question 13

Flo's Florals has a pure discount bond that comes due in one year and has a face value of $1,000. The risk-free rate of return is 3.7 percent. Flo's assets are expected to be worth either $950 or $1,100 in one year. Currently, these assets are worth $1,040. What is the current value of the debt of Flo's Florals?

Accepted Answer

The correct answer is C. The current value of the debt of Flo's Florals is $957.40. This is because the expected value of the assets is $1,025, which is less than the face value of the bond. Therefore, the bond is expected to be worth less than its face value, and the current value of the debt is $957.40.

Question 14

What is the straight bond value?

Accepted Answer

The answer of What is the straight bond value?
...

Question 15

Given the following information, what is the value of d₂as it is used in the Black-Scholes Option Pricing Model?

Accepted Answer

The answer of Given the following information, what is the...

Question 16

Lucie wants to have the option to buy 1,000 shares of stock at a set price any time up to a given date. Lucie should purchase:

Accepted Answer

A call option gives the buyer the right to buy a stock at a set price. Lucie wants to have the option to buy 1,000 shares of stock at a set price, so she should purchase 10 calls.

Question 17

What is the value of d₂given the following information on a stock?

Accepted Answer

The answer of What is the value of d₂given...

Question 18

What is the conversion value if the current stock price is $69.50?

Accepted Answer

The conversion value is calculated by multiplying the current stock price by the conversion ratio. However, without the conversion ratio or additional context, it's impossible to accurately calculate the conversion value from the information provided. The answer provided here is based on the assumption that the question is incomplete or lacks the necessary details to calculate the conversion value.

Question 19

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 9 percent. The current price of the stock is $23.24. What is the straight bond value?

Accepted Answer

The straight bond value is calculated by discounting the bond's cash flows (coupon payments and face value) at the yield of similar bonds (9%). The bond pays $30 every six months (6% of $1,000 annually, divided by 2), and the face value of $1,000 is paid at maturity. The present value of these cash flows at a 9% yield is approximately $863.22.

Question 20

The conversion premium for a convertible bond is computed using the formula:

Accepted Answer

The answer of The conversion premium for a convertible bond...

Quiz 25: Options and Corporate Securities

A stock is currently selling for $28 a share. The risk-free rate is 4.5 percent and the standard deviation is 35 percent. What is the value of d₁of a 3-month call option with a strike price of $25?

A stock is currently selling for $43 a share. The risk-free rate is 6 percent and the standard deviation is 30 percent. What is the value of d₁of a 6-month call option with a strike price of $45?

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 7 percent. The current price of the stock is $21.24. What is the conversion value of this bond?

On a given day, the rights to buy 160,000 shares of stock at a stated price by a stated date were traded. The newspaper would list the volume of options traded on that day as:

A convertible bond has a face value of $1,000 and a conversion price of $20. The bond has a 7 percent coupon and pays interest semi-annually. The bond matures in 8 years. Similar bonds are yielding 7.5 percent. The current price of the stock is $19.74. What is the straight bond value?

If d₁ = -1.52 in the Black-Scholes formula, what is the value for N(d₁) ?

What is the minimum value of this bond if the current stock price is $69.50 per share?

What is the value of d₂given the following information on a stock?

Given the following information, what is the value of d₂as it is used in the Black- Scholes Option Pricing Model?

What is the straight bond value?

Given the following information, what is the value of d₂as it is used in the Black-Scholes Option Pricing Model?

Lucie wants to have the option to buy 1,000 shares of stock at a set price any time up to a given date. Lucie should purchase:

What is the value of d₂given the following information on a stock?

What is the conversion value if the current stock price is $69.50?

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 9 percent. The current price of the stock is $23.24. What is the straight bond value?

The conversion premium for a convertible bond is computed using the formula:

Quiz 25: Options and Corporate Securities

A stock is currently selling for $28 a share. The risk-free rate is 4.5 percent and the standard deviation is 35 percent. What is the value of d1 of a 3-month call option with a strike price of $25?

A stock is currently selling for $43 a share. The risk-free rate is 6 percent and the standard deviation is 30 percent. What is the value of d1 of a 6-month call option with a strike price of $45?

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 7 percent. The current price of the stock is $21.24. What is the conversion value of this bond?

On a given day, the rights to buy 160,000 shares of stock at a stated price by a stated date were traded. The newspaper would list the volume of options traded on that day as:

A convertible bond has a face value of $1,000 and a conversion price of $20. The bond has a 7 percent coupon and pays interest semi-annually. The bond matures in 8 years. Similar bonds are yielding 7.5 percent. The current price of the stock is $19.74. What is the straight bond value?

If d1 = -1.52 in the Black-Scholes formula, what is the value for N(d1) ?

What is the minimum value of this bond if the current stock price is $69.50 per share?

What is the value of d2 given the following information on a stock?

Given the following information, what is the value of d2 as it is used in the Black- Scholes Option Pricing Model?

What is the straight bond value?

Given the following information, what is the value of d2 as it is used in the Black-Scholes Option Pricing Model?

Lucie wants to have the option to buy 1,000 shares of stock at a set price any time up to a given date. Lucie should purchase:

What is the value of d2 given the following information on a stock?

What is the conversion value if the current stock price is $69.50?

A convertible bond has a face value of $1,000 and a conversion price of $22.50. The bond has a 6 percent coupon and pays interest semi-annually. The bond matures in six years. Similar bonds are yielding 9 percent. The current price of the stock is $23.24. What is the straight bond value?

The conversion premium for a convertible bond is computed using the formula:

A stock is currently selling for $28 a share. The risk-free rate is 4.5 percent and the standard deviation is 35 percent. What is the value of d₁of a 3-month call option with a strike price of $25?

A stock is currently selling for $43 a share. The risk-free rate is 6 percent and the standard deviation is 30 percent. What is the value of d₁of a 6-month call option with a strike price of $45?

If d₁ = -1.52 in the Black-Scholes formula, what is the value for N(d₁) ?

What is the value of d₂given the following information on a stock?

Given the following information, what is the value of d₂as it is used in the Black- Scholes Option Pricing Model?

Given the following information, what is the value of d₂as it is used in the Black-Scholes Option Pricing Model?

What is the value of d₂given the following information on a stock?