Reference no: EM132584782
Question 1: Curt Jones purchases a Call Option on IDM for $3.00. The option's strike price (X) is $55. Assuming IDM's current stock price (S) is $45, what is the intrinsic value of the option?
A. $0.00
B. -$13.00
C. $10.00
D. -$10.00
Question 2: Sand 5th Avenue borrows $350 million from Trust Bank. It invests $250 million in a new generator and uses the rest, $100 million, to invest in high-yield Certificate of Deposit. What is the impact of this transaction on Sand's balance sheet?
A. Assets increase by $250 million
B. Shareholder equity increases by $100 million
C. Net income increases by $100 million
D. Liabilities increase by $350 million
Question 3: A security's total risk is composed of its___ and ___
A. Beta and idiosyncratic risk
B. Beta and market risk
C. Specific risk and firm-specific risk
D. Aggressive risk and defensive risk
Question 4: Which of the following actions will increase a firm's cash balance, all else equal.
A. Purchase of a new equipment
B. Issuance of debt
C. A decrease in accounts payable
D. An increase in inventory
Question 5: What is the most likely explanation for a 30% return on a stock with a beta of 1.0 in a month when the market returned 12.5%?
A. The market is undervalued
B. The stock is aggressive
C. The beta is really 0.5
D. Favorable firm-specific (idiosyncratic) news was reported
Question 6: To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's
A. Pre-tax cost of debt
B. Weighted-average cost of capital
C. CAPM-derived cost of equity
D. Weighted-average cost of debt