QUESTION 80 The following data applies to the next 2 questions. What would be th

Question

QUESTION 80

The following data applies to the next 2 questions.

What would be the price of LBC company stock in year 3?

$27.75

$29.5

$30

$32.1

34.25

1 points   

QUESTION 81

What would be the price of LBC company stock now?

$22.33

$25.62

$27.75

$28.63

$30.12

1 points   

QUESTION 82

The following data apply to the next 7 questions.

Suppose the following is the part of the WSJ listed options quotations on 12/1/2008; on that day IBN stock price was $53.

Which one of the following is out of the money?

50 Jan Call

50 Apr Call

55 Jan Call

60 Jan Put

1 points   

QUESTION 83

What is the exercise value, or the intrinsic (=parity) value of a Jan 50 call option?

$1

$2

$3

$4

$5

1 points   

QUESTION 84

How much time value is in Jan 50 call option?

$1

$2

$3

$4

$5

1 points   

QUESTION 85

Suppose today you buy a IBN Jan 50 call for the price listed. At expiration, IBN stock sells for $60. What is the profit per contract?

$300

$500

$600

$800

$1200

1 points   

QUESTION 86

Suppose you buy a IBN Apr 50 put for the price listed. At expiration, IBN stock sells for $45. What is your profit per contract?

$150

$250

$375

$400

$550

1 points   

QUESTION 87

Assume the call premium of $5 for IBN Jan 50 call option is right. Then the underlined price of $3.50 for Apr 50 call cannot be true. Which one of the following is a reasonable price for the option?

$2.5

$3

$3.5

$4.5

$5.5

1 points   

QUESTION 88

Assume the call premium of $5 for IBM Jan 50 call option is right. Then the underlined price of $6 for Jan 55 call cannot be true. Which one of the following is a reasonable price for the option?

$0

$1

$6.5

$7

$7.5

1 points   

QUESTION 89

ABD stock is selling for $145 and call option on ABD stock with striking price of $140 is selling for $12.5. The option expires 5 months from today. The risk-free interest rate is 8%. Based on the put-call parity for European options, calculate the value of put option with striking price of $140 and time to expiration of 5 months.

$2.53

$3.08

$5.51

$7.12

$8.33

1 points   

QUESTION 90

The current level of the S&P 500 is 1500. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 4%. The futures price for a contract on the S&P 500 due to expire 6 months from now should be __________.

$1,500

$1,515

$1,525

$1,535

$1,545

1 points   

QUESTION 91

Use the following information to answer the next two questions.

What is the value of one contract of DEC S&P 500 futures?  

$300,000

$325,000

$350,000

$375,000

$400,000

1 points   

QUESTION 92

Assuming that the beta of your portfolio is 1.5, calculate the number of futures contracts to hedge your portfolio. Long or short?

150 contracts short

200 contracts short

250 contracts short

150 contracts long

200 contracts long

Lifecycle Bicycle Company is expected to pay a dividend in year 1 of $2.20, a dividend in year 2 of $2.50, and a dividend in year 3 of $3.00.  After year 3, dividends are expected to grow at the rate of 7% per year.  An appropriate required return for the stock is 17%.

Explanation / Answer

80. price of LBC company stock in year 3 =3*107%/(17%-7%)

=$ 32.1

81.

82.55 jan call is out of the call since strike price is more than stock price

83.50 jan call potion intrinsic value = $ 3 (53-50)

84.profit per contract =$ 500 ( 10*50)

85.profit per contract =$ 250 (50-45)*50

year Income PVF@17% DCF 1 2.2 0.854701 1.880342 2 2.5 0.730514 1.826284 3 3 0.624371 1.873112 5.579737 Add: Perptuity value of stock 32.1 price of Sotck 37.67974

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