1. What impact does the plowback ratio have on the P/E ratio?
2. Define each of the following terms and give examples for each:
Call Option
Put Option
In the money
3. What is the Black-Scholes formula? Provide a definition for each element of the formula.
4. In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm?
5. Why do you think the most actively traded options tend to be the ones that are near the money?
6. Discuss the put-call parity relationship.