Cause the value of call to decrease

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Reference no: EM132029689

1. Which one of these argues than the value of a firm is independent of its capital structure? A. MM Proposition I with taxes B. MM Proposition II with taxes C. MM Proposition II without taxes D. MM Proposition I without taxes

Which one of the following will cause the value of a call to decrease?

A. Increasing the stock price

B. Lowering the exercise price

C. Increasing the risk free rate

D. Lowering the risk level of the underlying security.

2. The market price of Wild Ride stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a 1-month call option contract with a strike price of $23 and an option price of $1.83 You also purchase a 1-month put option on the stock with a strike price of $23 and an option price of $.95. What will be your total profit or loss on all the transactions related to these option positions if the stock price is $17.20 on the day the options expire?

A. -$260

B. $302

C. $200

D. $150

3. SuWan Industries has a debt-equity ratio of 1.5. Its WACC (weighted average cost of capital) is 8 percent, and its cost of dbet is 5.6 percent. The corporate tax rate is 35 percent. Calculate SuWan's cost of equity capital.

A. 12.44 percent

B. 14.54 percent

C. 13.74 percent

D. 11.60 percent

Reference no: EM132029689

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