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1. A put option gives the owner the right to ________ an asset at a fixed price at some future date.
A. buy
B. sell
C. hold
D. none of the above
2. Suppose that a stock sells at a price of $60 on the expiration date. Compute the payoff to the seller of a call option if the option strike price is $20.
A. -$20
B. -$30
C. -$40
D. -$50
3. Suppose you purchase a call option for $4 and a strike price of $30. On the expiration day, the price of the stock is $40. What is the return on the call option if you hold your position until maturity?
A. 170%
B. 150%
C. 125%
D. 130%
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A trader buys 100 shares of a stock on margin. The price of the stock is $30. The initial margin is 60% and the maintenance margin is 40%. How much money does the trader have to provide initially? For what share price is there a margin call.
Which of the following would increase a firms financial leverage?
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Suppose a European put has an exercise price of $110 on February 5. The put expires in 145 days. Suppose the appropriate discount rate on Treasury bills maturing in 44 days is 7.615. What is the max value of the European put? If the put were instead ..
Karen Lumber Company hired you to help estimate its cost of capital. You were provided with the following data: D1 = $1.10; P0 = $27.50; g = 6.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to ..
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