Test Bank For Corporate Finance, 8th
Canadian Edition by Stephen A. Ross
OPTIONS - answer-A financial contract that gives its owner the right, but not
the obligation, to buy or sell a specified asset at an agreed-upon price on or
before a given future date.
OPTION EXERCISE - answer-The act where an owner of an option buys or sells
the underlying asset, as is his right.
STRIKE PRICE - answer-The fixed price in an option contract at which the owner
can buy or sell the underlying asset.
EXPIRATION DATE - answer-The last day on which an owner of an option can
elect to exercise.
INTRINSIC VALUE - answer-The value of an option if it were to immediately
expire, that is, its lower pricing bound.
PUT-CALL PARITY - answer-The relationship between the prices of the
underlying stock, a call option, a put option, and a riskless asset.
,OPTION DELTA - answer-The effect on an option's value of a small change in
the value of the underlying asset.
EUROPEAN OPTIONS (difference) - answer-The difference between an
American call and a European call is that the American call can be exercised at
any time up to the expiration date while the European call can only be
exercised on the expiration date.
CALL EXPIRATION VALUE - answer-If a call has a positive intrinsic value at
expiration the call is said to be in the money.
PUT EXPIRATION VALUE - answer-A 35 put option on ABC stock expires today.
The current price of ABC stock is $36. The put is out of the money.
CALL UPPER BOUND - answer-The maximum value of a call option is equal to:
the price of the underlying stock.
CALL LOWER BOUND - answer-The lower bound on a call's value is either the:
stock price minus the exercise price or zero, whichever is greater.
CALL INTRINSIC VALUE - answer-The intrinsic value of a call is: always equal to
zero if the call is currently out of the money.
PUT INTRINSIC VALUE - answer-The intrinsic value of a put is equal to the:
greater of the strike price minus the stock price or zero.
, AMERICAN OPTIONS - answer-An option that may be exercised at any time up
to its expiration date.
EUROPEAN OPTIONS - answer-An option that may be exercised only on the
expiration date.
CALL OPTION - answer-A derivative security that gives the owner the right, but
not the obligation, to buy an asset at a fixed price for a specified period of
time.
PUT OPTION - answer-A derivative security that gives the owner the right, but
not the obligation, to sell an asset at a fixed price for a specified period of time.
ARBITRAGE - answer-A trading opportunity that offers a riskless profit.
FACTORS AFFECTING OPTION VALUES - answer-The value of a call increases as
the price of the underlying stock increases.
EQUITY AS A CALL OPTION - answer-The stockholders in this firm basically own
a call option on the assets of the firm with a strike price of: $50,000.
Canadian Edition by Stephen A. Ross
OPTIONS - answer-A financial contract that gives its owner the right, but not
the obligation, to buy or sell a specified asset at an agreed-upon price on or
before a given future date.
OPTION EXERCISE - answer-The act where an owner of an option buys or sells
the underlying asset, as is his right.
STRIKE PRICE - answer-The fixed price in an option contract at which the owner
can buy or sell the underlying asset.
EXPIRATION DATE - answer-The last day on which an owner of an option can
elect to exercise.
INTRINSIC VALUE - answer-The value of an option if it were to immediately
expire, that is, its lower pricing bound.
PUT-CALL PARITY - answer-The relationship between the prices of the
underlying stock, a call option, a put option, and a riskless asset.
,OPTION DELTA - answer-The effect on an option's value of a small change in
the value of the underlying asset.
EUROPEAN OPTIONS (difference) - answer-The difference between an
American call and a European call is that the American call can be exercised at
any time up to the expiration date while the European call can only be
exercised on the expiration date.
CALL EXPIRATION VALUE - answer-If a call has a positive intrinsic value at
expiration the call is said to be in the money.
PUT EXPIRATION VALUE - answer-A 35 put option on ABC stock expires today.
The current price of ABC stock is $36. The put is out of the money.
CALL UPPER BOUND - answer-The maximum value of a call option is equal to:
the price of the underlying stock.
CALL LOWER BOUND - answer-The lower bound on a call's value is either the:
stock price minus the exercise price or zero, whichever is greater.
CALL INTRINSIC VALUE - answer-The intrinsic value of a call is: always equal to
zero if the call is currently out of the money.
PUT INTRINSIC VALUE - answer-The intrinsic value of a put is equal to the:
greater of the strike price minus the stock price or zero.
, AMERICAN OPTIONS - answer-An option that may be exercised at any time up
to its expiration date.
EUROPEAN OPTIONS - answer-An option that may be exercised only on the
expiration date.
CALL OPTION - answer-A derivative security that gives the owner the right, but
not the obligation, to buy an asset at a fixed price for a specified period of
time.
PUT OPTION - answer-A derivative security that gives the owner the right, but
not the obligation, to sell an asset at a fixed price for a specified period of time.
ARBITRAGE - answer-A trading opportunity that offers a riskless profit.
FACTORS AFFECTING OPTION VALUES - answer-The value of a call increases as
the price of the underlying stock increases.
EQUITY AS A CALL OPTION - answer-The stockholders in this firm basically own
a call option on the assets of the firm with a strike price of: $50,000.
