Question 1: A stock is currently selling for $25. A 6-month call option on the stock has a strike price of $30 and sells for $0.50. Calculate the exercise value of the option?
- $0.00
- $4.50
- $5.00
- $24.50
- none of the above
Question 2: Which of the following is not a real option?
- The option to switch the type of vehicle manufactured in a plant
- The option to expand into a foreign country
- The option to buy shares of stock if its price goes up.
- The option to abandon a project.
- none of the above
Question 3: The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?
- $2.99
- $2.70
- $2.43
- $3.29
- $3.62
Question 4: A company purchases equipment for $5 million, incurs shipping costs of $30,000 and installation costs of $50,000. It also requires additional net working capital of $100,000. What is the depreciable base?
- $5,000,000
- $5,180,000
- $5,080,000
- $5,030,000
- none of the above
Question 5: Which of the following is an example of a real option?
- An option to buy stock at a specified price for a specified period of time
- An option to sell stock at a specified price for a specified period of time
- An option to invest in a project today or to wait a year.
- An option to buy either an American or European option
- none of the above