Ch.20 Options And Corporate Finance Test Questions & Answers

Fundamentals of Corporate Finance, 5e (Parrino)

Chapter 20 Options and Corporate Finance

1) A put option with a strike price of $20 is expiring today. The stock is currently selling at $25. Based on this information, the put option should not be exercised.

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

2) A stock is selling for $50 today. A call option on the stock with a strike price of $50 is set to expire next month. If the price of the stock goes down tomorrow, we would expect the price of the call option to go down as well.

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

3) A call option can sometimes be priced higher than the underlying asset.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

4) Neither a call nor a put option can have a negative price.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

5) The current price of an asset is $75. A put option on the asset with a strike price of $100 expires one year from now. It is possible, without arbitrage, for this put option to be priced at $24 today.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

6) If the risk-free rate of interest increases, all else being equal, we would expect the value of a call option to increase.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

7) In the binomial pricing model, an option is priced using a replicating portfolio that typically consists of a risk-free bond and the asset underlying the option.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

8) In the binomial pricing model, it is important that we know the probability that the underlying asset will increase in value.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

9) When using the binomial pricing model to price an option, the volatility of the underlying asset's value is represented by the difference between the two possible future values of the underlying asset.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

10) Consider a call option on a stock with a strike price of $60. If the stock price at expiration is $50, then the payoff from the call option is $10.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

11) Consider a put option on a stock with a strike price of $60. If the stock price at expiration is $50, then the payoff from the put option is $10.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

12) Suppose you have sold a put option on a stock with a strike price of $25 and the current price of the stock is $25. If the stock price at expiration is $30, your payoff will be -$5.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

13) A portfolio consisting of one put option and one call option, both with the same exercise price, is an investment strategy for investors who do not know whether an asset's value is likely to go up or down but think that the volatility of the asset will increase.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

14) If a firm adds financial options to its debt securities, it will increase the interest expense to the firm.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

15) If a project has a positive NPV, then the real options that are relevant to the project are not important to the estimation of the value of the project.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

16) The option to defer investment can be characterized as the flexibility to wait and learn more information about a project before committing resources to that project.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

17) The option to terminate a project is similar to a put option.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

18) It is possible that some projects with a negative NPV should be pursued after taking into account the value of real options inherent in that project

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

19) A company is negotiating for the option to develop a platinum mine. Under the terms of the option contract, the company would be able to purchase the development rights to the mine one year from now for an exercise price specified today. If, during the negotiations over the option contract, the volatility of the price of platinum increases, the company should expect to pay a higher price for the development option.

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

20) The option to abandon a project can decrease the project's value.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

21) Ecofren Thermostats Co. sells equipment to residential and commercial customers. It is considering whether or not to develop a new line of smart thermostats. The discounted cash flows from smart thermostat sales are not likely to cover the development costs. However, the company has decided to pursue the project anyway. If the commercial technology is successful, it might be applied to a new line of very profitable residential thermostats. This is an example of the option to make follow-on investments.

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

22) Consider a firm with a single loan. There are no interest payments during the life of the loan, but the principal and interest are all due in two years. It is uncertain whether the cash flow the company will produce will be enough to pay off its debts. The payoff to stockholders in this company resembles that of the owner of a call option.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

23) Consider a company that is likely to go bankrupt in the next year. The bondholders may encourage the company to pursue risky negative-NPV projects in hope that the firm will avoid financial distress.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

24) Consider a company that is likely to go bankrupt in the next year. Stockholders may wish to pursue negative-NPV projects, even if there is no additional value to the project from real options.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

25) By designing executive compensation plans with performance bonuses, stock-based compensation, and stock options, corporate boards are attempting to make the payoff function for managers similar to the payoff function for stockholders.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

26) Managers may use less debt than shareholders' expectation due to the increased financial distress. This is an example of agency costs of equity.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

27) Financial options can be used to hedge risks such as interest rates and foreign exchange rates.

Learning Objective: LO 5

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

28) Suppose the current spot price of wheat is $25 a bushel. A wheat farmer expects to produce 1,000 bushels at the end of the season, and she wants to ensure that she gets at least $19 a bushel. If a put option on 1,000 bushels of wheat with a strike price of $20 and an expiration date at the end of the season is selling for $1,000, the farmer can purchase the put option to guarantee she gets $19 a bushel.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

29) Suppose the current spot price of corn is $20 a bushel. A corn farmer expects to produce 2,000 bushels at the end of the season, and she wants to ensure that she gets at least $18 per bushel. Call options on 1,000 bushels of corn with a strike price of $15 and are selling for $3,000 at the expiration date. By selling call options on her corn crop, the farmer can guarantee that she gets at least $18 per bushel.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

30) Hedging is the use of financial instruments such as options, forwards, futures, and swaps to reduce the financial risks faced by a firm.

Learning Objective: LO 5

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

31) Harmostrax Co. has a defined-benefit pension plan for its employees. To fund the plan, the company makes periodic contributions to a stock investment fund. If the stock market declines significantly, the company would have to make additional contributions to make up for lost value. The company could hedge its risk of a market downturn by periodically purchasing put options on the stock market.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

32) A small soybean farmer wants to hedge the price risk of his next crop, but he is financially constrained. He cannot raise capital by either borrowing money or selling his current assets. Instead, he sells call options on his soybean crop with a strike price of $14 per bushel at a premium of $0.50 a bushel. Using the proceeds from selling the call options, he buys put options on his soybean crop with a strike price of $11.00 per bushel at a premium of $0.35 per bushel. Assume the risk-free interest rate is 0 percent. By taking these derivative positions, the farmer has guaranteed that he will earn somewhere between $14.15 and $11.15 per bushel.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

33) An investor (a buyer) purchases a call option from a seller. On the expiration date of a call option, the buyer has the:

A) obligation to buy the underlying asset and the seller has the obligation to sell it.

B) right to buy the underlying asset and the seller has the obligation to sell it.

C) obligation to sell the underlying asset and the seller has the right to buy it.

D) right to sell the underlying asset and the seller has the right to buy it.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

34) An investor (a buyer) purchases a put option from a seller. On the expiration date of a put option, the buyer has the:

A) obligation to sell the underlying asset and the seller has the right to buy it.

B) obligation to sell the underlying asset and the seller has the obligation to buy it.

C) right to sell the underlying asset and the seller has the obligation to buy it.

D) right to buy the underlying asset and the seller has the right to sell it.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

35) Which of the following statements is true of a call option?

A) The value of a call option can never be positive.

B) The value of a call option can be more than the value of the underlying asset.

C) The value of a call option can never be worth less than the current value of the asset minus present value of the strike price.

D) The value of a call option can be worth more than the strike price.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

36) Which of the following statements is true of a put option?

A) The value of a put option can be negative.

B) The value of a put option can be worth more than the underlying asset.

C) The value of a put option can be less than the present value of the strike price minus the current value of the underlying asset.

D) The value of a put option increases when the stock price increases.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

37) Suppose you own a call option on a stock with a strike price of $20 that expires today. The price of the underlying stock is $15. If you exercise the option and immediately sell the stock, then you will:

A) earn $5.

B) lose $5.

C) lose $15.

D) earn $15.

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

38) Suppose you own a put option on a stock with a strike price of $35 that expires today. The price of the underlying stock is $25. If you purchase the stock and exercise the put option, then you will:

A) earn $10.

B) lose $10.

C) earn $25.

D) lose $25.

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

39) Consider an option that gives the owner the right to buy the underlying stock for $20 only on the third Friday of May, next year. This option can best be described as:

A) an American call option.

B) a European put option.

C) an American put option.

D) a European call option.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

40) Consider an American and a European call option on a dividend-paying stock, with otherwise identical features (same strike price, etc.). Which of the following statements is true?

A) The American call option will never be worth less than the European call option.

B) The European call option will never be worth less than the American call option.

C) Both European call and American call option should always have the same value.

D) The American option can be exercised only on a specific date which is the expiration date.

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

41) The option payoff function describes the relationship:

A) between the value of an option and the value of a firm.

B) between the value of an option and the price of the underlying asset.

C) between the call premium and the value of an option.

D) between the call premium and the price of underlying asset.

Learning Objective: LO 1

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

42) Which of the following changes, everything else held constant, will increase the value of a call option?

A) The value of the underlying asset becomes more volatile

B) The price of the underlying asset goes down

C) The option is nearing its expiration date

D) A higher strike price

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

43) Which of the following changes, everything else held constant, will increase the value of a put option?

A) An increase in the risk-free interest rate

B) Lower volatility of the price of the underlying asset

C) A higher strike price

D) The option is nearing its expiration date

Learning Objective: LO 1

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

44) What happens to the value of call and put options if the volatility of the price of underlying asset decreases?

A) Put options will be worth more, call options will be worth less.

B) Put options will be worth less, call options will be worth more.

C) Both call and put options will be worth more.

D) Both call and put options will be worth less.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

45) If the price of the underlying asset increases, what happens to the value of call and put options?

A) Put options will be worth more, but call options will be worth less.

B) Put options will be worth less, but call options will be worth more.

C) Both call and put options will be worth more.

D) Both call and put options will be worth less.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

46) What happens to the value of call and put options, as the expiration date gets closer, holding other things constant?

A) Call option will be worth more, but put options will be worth less.

B) Call option will be worth less, but put options will be worth more.

C) Both call and put options will be worth more.

D) Both call and put options will be worth less.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

47) What happens to the value of call and put options, with everything else held constant, if the risk-free interest rate increases?

A) Call options will be worth more, but put options will be worth less.

B) Call options will be worth less, but put options will be worth more.

C) Both call and put options will be worth less.

D) Both call and put options will be worth more.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

48) The management at PhoneUn considered the option to abandon when building their new manufacturing plant. The design of the plant allows it to be easily converted to manufacture other types of large machinery. If its new line of phones is poorly received, its plant could be easily sold to another manufacturing company. In this example, the price at which they expect to sell the plant if things go poorly resembles:

A) the premium of a put option on the plant.

B) the premium of a call option on the plant.

C) the strike price of a put option on the plant.

D) the strike price of a call option on the plant.

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

49) Frost1 Motors is very likely to enter financial distress. Without a dramatic change of events over the next couple of years, the company will be unable to pay its lenders, who will then gain control of the company's assets. A group of stockholders has pressured the company's management to begin manufacturing and selling one of the company's concept cars in the hope that it will be a big hit. Concept cars are prototypes that are developed to test new ideas and to show off at auto shows. Although elements of concept cars are often incorporated into product lines, rushing a concept car into production is very risky. The best estimates about the concept car make it appear to be a negative-NPV project. This is a good example of:

A) the dividend payout problem.

B) the underinvestment problem.

C) the asset substitution problem.

D) the agency cost of equity.

Learning Objective: LO 4

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

50) Which of the following would be a reason to bundle options with stock in an IPO?

A) To increase the supply of outstanding shares in order to attract more investors

B) To promote the dilution of common stockholders' control on assets

C) To reduce the number of common shares that must be sold at the IPO price in order to raise the amount of money that the firm needs

D) To bring down the earnings per share of common stockholders

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

51) When a company issues convertible bonds with a $1,000 par value that can be converted to 20 shares of common stock, each bond includes:

A) a put option with an exercise price of $200 per share.

B) a call option with an exercise price of $50 per share.

C) a put option with an exercise price of $20 per share.

D) a call option with an exercise price of $20 per share.

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

52) Consider a CEO who holds neither stock nor stock options in the company she runs. Her payoff function regarding the firm's performance is most likely to resemble the payoff function of:

A) stockholders.

B) lenders.

C) owners of a call option on the firm.

D) holders of a risk-free bond with coupon payments equal to her salary.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

53) When the value of the firm is above the face value of the debt:

A) the stockholders repay the debt and the equity is worth less than $0.

B) the stockholders repay the debt and the equity is worth the difference between the firm value and the face value of the debt.

C) the stockholders default and the lenders receive the value of the firm.

D) the stockholders default and the equity is worth $0.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

54) Which of the following is a valid reason for managers selecting negative-NPV projects?

A) The NPV analysis includes a valuable real option to expand the project if things go well.

B) If a firm has debt, managers may create value for shareholders by taking on some risky negative NPV projects.

C) Managers' payoff functions represent the payoffs of lenders. By taking negative NPV projects, the managers can create value for lenders.

D) Projects having negative NPV can have high internal rate of return.

Learning Objective: LO 3

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

55) As the manager of a sporting goods company, you are presented with a new golf project. An inventor has recently patented the design for a new golf club that makes playing golf much easier. Your company has made contact with the inventor, who is willing to sell the exclusive rights to the technology, but if you do not act fast he will sell the rights to a rival company. You are not certain whether the new golf club will become popular, but your analysts have completed a basic NPV analysis. Given the available information, the project has a positive NPV. However, you know there are several real options associated with the project, including the option to abandon the project and the option to make follow-on investments. Which of the following statements regarding the project is correct?

A) Based on the NPV analysis, you should accept the project. The value of the project may be worth more than the NPV analysis but not less.

B) Based on the NPV analysis, you should accept the project. The NPV analysis contains all the information about the value of the project.

C) Based on the NPV analysis, you should reject the project. Without additional information about the value of the real options, there is no way to make a decision.

D) Based on the NPV analysis, you should reject the project. The NPV analysis contains all the information about the value of the project.

Learning Objective: LO 3

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

56) Arctic Inc. has built a highly interactive operating system for mobile and other electronic gadgets. The development cost to the company was high but the system was inexpensive to sustain and market. The NPV of this project was negative. However, in the coming years the company plans to launch mobile phones, portable audio and video devices. The decision of launching the operating system for mobile and other devices is an example of:

A) option to defer investment.

B) option to abandon a project.

C) option to change operations.

D) option to make follow-on investments.

Learning Objective: LO 3

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

57) The employment contracts for professional athletes often contain options for either the player or the team. Consider one recent contract in Major League Baseball. The player's salary was guaranteed for the first couple of years. However, after several years, the team had the option to cancel the contract if the player became injured. If we think of each player as a project for the team, this option feature of the contract is best described as:

A) the option to defer investment.

B) the option to make follow-on investments.

C) the option to change operations.

D) the option to abandon projects.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

58) Adosonic Reality is considering the construction of a new development of condominiums in downtown Austin, Texas. The site for the new development is currently occupied by an office building owned by the city. The project's profitability will depend largely on the population increase in Austin over the next several years. Rather than buying the site, Adosonic Reality has entered into an agreement with the city to pay $200,000 for the right to purchase the site for $10 million two years from now. The real option embedded in this contract is best described as:

A) the option to defer investment.

B) the option to make follow-on investments.

C) the option to change operations.

D) the option to abandon projects.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

59) Consider a new firm that is working on the first generation of long-awaited consumer jet packs. The project will take a tremendous amount of R&D expenditure. Even if the development is successful, manufacturing the first generation of jet packs is likely to be so expensive that only a selected few consumers will be able to afford them. The projected sales of the first generation of jet packs almost certainly will not cover the development and manufacturing costs—the project has a negative NPV. Which of these reasons would validate the firm's decision to pursue the jet pack project?

A) If development is unsuccessful, it can abandon the project before spending money on manufacturing.

B) If the project is successful, it may lead to a very profitable second project—a cheaper jet pack that will be a positive-NPV project.

C) Because it is a high-tech firm, the cash flows generated by a project are not important in valuing the company.

D) If development is successful, it allows managers to reach wide range of consumers.

Learning Objective: LO 5

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

60) A local city government has awarded a contract to sequentially build five new elementary schools over the next 10 years. The price for each school has been spelled out in the contract, but at the beginning of each year the city can cancel the order for the remaining schools. The city government is concerned that if the population of the town does not grow as expected it may not need all of the schools. What type of financial option does the option to cancel the order resemble?

A) Owning a call option on the value of the new schools

B) Owning a put option on the value of the new schools

C) Selling a call option on the value of the new schools

D) Selling a put option on the value of the new schools

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

61) Purchasing a house is a somewhat complicated process. Typically, if the buyer's offer is accepted by the seller, the transaction will not be completed or "closed" for several weeks. During this time the buyer may gather more information about the house or research other houses in the area. Some home purchase contracts include an option fee. The buyer may pay the seller a few hundred dollars for the right to walk away from the contract prior to closing for any reason. This option fee can be best described as:

A) the option to defer investment.

B) the option to make follow-on investments.

C) the option to change operations.

D) the option to abandon project.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

62) The management at Sevenglobe Motors considered the option to abandon when building their new manufacturing plant. The design of the plant allows it to easily be converted to manufacture other types of large machinery. If their new line of cars is poorly received, their plant should be easy to sell to another manufacturing company. In this example, the extra cost of building the plant in such a way that it can easily be converted for other uses resembles:

A) the premium of a put option on the plant.

B) the premium of a call option on the plant.

C) the strike price of a put option on the plant.

D) the strike price of a call option on the plant.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

63) Anonxy Foods has made the decision to invest in a new line of organic microwave dinners. The new line of dinners is a negative-NPV project; paying its suppliers to convert to organic practices will be expensive. However, the company will be in a good position to expand into more profitable lines of food if consumer demand for organic foods grows more than expected. The negative value of the organic dinner project most closely resembles:

A) the premium of a put option on future organic projects.

B) the premium of a call option on future organic projects.

C) the strike price of a put option on future organic projects.

D) the strike price of a call option on future organic projects.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

64) Bifive Homes, Inc., is a developer of planned residential communities. It has entered into an option contract with a land owner outside Austin, Texas. It will pay the land owner $100,000 for the option to buy the land in two years at a price of $20 million. During that time Bifive Homes will evaluate population and real estate trends in Austin. Its plan is to buy the land if real estate prices in Austin increase enough that developing the land would be worth more than the $20 million price. The $20 million purchase price resembles:

A) the premium price of a put option on the land.

B) the premium price of a call option on the land.

C) the strike price of a put option on the land.

D) the strike price of a call option on the land.

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

65) The claim stockholders have on a company's cash flow with outstanding debt can best be described as:

A) a call option on the firm's assets.

B) a put option on the firm's assets.

C) an interest-free bond with the same value as the firm's assets.

D) a put option on the firm's liabilities.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

66) Which of the following statements is an example of an agency cost of debt?

A) ABC Co. shareholders pressure management to invest in very risky projects in hopes that one of the investments might pay off. The company is highly leveraged, so shareholders have little to lose.

B) ABC Co. has little debt with very few investment opportunities. The board of directors decides not to pay out a large special dividend. Lenders are fully paid for the principal value of the debt.

C) ABC Co. is financially sound. The company has a negative-NPV investment opportunity. Investors refuse to invest the additional funds to pursue the negative NPV project.

D) Investors are unsure of the value for ABC Co.. The market assumes that ABC Co.'s managers are issuing equity to pay down debt because the company's stock is overvalued. As a result, the company's stock price falls when the equity issue is announced.

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

67) The claim lenders' hold on cash flows in a company with outstanding risky debt is often described as:

A) holding a call option on the firm's assets.

B) holding a put option on the firm's assets.

C) selling a put option on the firm's assets and holding a risk-free bond.

D) selling a call option on the firm's asset and holding a risk-free bond.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

68) Adding stock options and bonuses to the compensation of a manager is intended to more closely align the interests of the manager with those of:

A) stockholders.

B) lenders.

C) employees.

D) public.

Learning Objective: LO 4

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

69) What is the payoff for the buyer of a call option with a strike price of $50 if the underlying stock price at expiration is $85?

A) $35

B) $50

C) $45

D) $140

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

70) What is the payoff for the buyer of a call option with a strike price of $35 if the underlying stock price at expiration is $30?

A) $10

B) $20

C) $5

D) $0

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

71) What is the payoff for the buyer of a put option with a strike price of $63 if the underlying stock price at expiration is $43?

A) $126

B) $43

C) $20

D) $63

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

72) You own a put option on Phosfranc Inc. stock with a strike price of $50. The current stock price is $50. Which of the following would benefit you?

A) The stock price goes up.

B) The stock price goes down.

C) The stock price stays the same.

D) The stock price has low volatility.

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

73) You have sold a call option on Ausia Co. stock with a strike price of $50. You do not intend to make any other transactions before the options expiration date. The current stock price is $30. Which of the following statements best describes your hopes for the stock?

A) You want the stock price to fall below $30.

B) You want the stock price to rise above $50.

C) You are indifferent, as long as the stock price stays under $50.

D) You are indifferent to changes in the stock price.

Learning Objective: LO 1

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

74) What is the payoff for the owner of a put option with a strike price of $22 if the price of the underlying stock at expiration is $19?

A) $1

B) $3

C) $20

D) $22

Learning Objective: LO 1

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

75) Consider a call option with a strike price of $20, which expires in one year. The risk-free rate of interest is 5 percent. The underlying stock price is $30. Without arbitrage, which of the following is a possible price for the call option? (Round intermediate computations to two decimal places.)

A) $0

B) $8

C) $15

D) $1

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

76) Consider a call option with a strike price of $10, which expires in one year. The risk-free rate of interest is 10 percent. The current underlying stock price is $30. Without arbitrage, which of the following is a possible price for the call option? (Round intermediate computations to two decimal places.)

A) $0

B) $19.50

C) $21.00

D) $19.00

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

77) Consider a put option with a strike price of $40, which expires in one year. The risk-free rate of interest is 8 percent. The current underlying stock price is $20. Without arbitrage, which of the following is a possible price for the put option? (Round intermediate computations to two decimal places.)

A) $0.50

B) $16.20

C) $25.00

D) $10.20

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

78) Pitchgent, Inc., stock is currently trading at $22 per share. There are two types of options available on the stock. Call options with a strike price of $16, which expire next month, are currently trading at $7.00. Put options with a strike price of $16 which expire next month are currently trading at $1.10. Larry invests $132 in common stock. Keaty invests $132 in the call options. Marek invests $132 in the put options. At the end of one month, the price of Pitchgent, Inc., is $25. Who made the most money from their investment?

A) Larry

B) Keaty

C) Marek

D) Larry and Keaty tied

Learning Objective: LO 1

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

79) Tunerecord Unit Co. stock is currently trading at $24. There are two types of options available on the stock. Call options with a strike price of $24, which expire next year, are currently trading at $9.60. Put options with a strike price of $24, which expire next year, are currently trading for $2.40. Berniss invests $144 in common stock. Jewel invests $144 in the call options. Reynardo invests $144 in the put options. At the end of one year, the price of Tunerecord Unit stock is $21.60. Who made the least losses from their investment?

A) Berniss

B) Jewel

C) Reynardo

D) Berniss and Jewel tied

Learning Objective: LO 1

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

80) Assume that the stock of Alitor Craft, Inc. is currently trading for $19 and will either rise to $21 or fall to $15 in one year. The risk-free rate for one year is 12 percent. What is the value of a call option with a strike price of $16? (Do not round intermediate computations, but round final answer to two decimal places.)

A) $4.67

B) $2.33

C) $1.04

D) $6.83

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

81) Assume that the stock of Tencheck, Inc., is currently trading for $45 and will either rise to $57 or fall to $19 in one year. The risk-free rate for one year is 9 percent. What is the value of a call option with a strike price of $47? (Do not round intermediate computations, but round final answer to two decimal places.)

A) $3.40

B) $6.84

C) $8.84

D) $7.25

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

82) XYZ, Inc. stock is currently trading for $47 and will either rise to $49 or fall to $44 in one year. The risk-free rate for one year is 6 percent. You own a call option with a strike price of $32, which expires in one year. What is the value of your call option? (Do not round intermediate computations, but round final answer to two decimal places.)

A) $0

B) $5.27

C) $10.05

D) $16.81

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

83) Assume that the stock of XYZ, Inc., is currently trading for $18 and will either rise to $24 or fall to $13 in one year. The risk-free rate for one year is 11 percent. What is the value of a call option with a strike price of $26?

A) $0

B) $5.23

C) $7.72

D) $2.00

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

84) The standard deviation of the return on a stock is 25% per year. What is the standard deviation of stock return over two years? (Round your intermediate answer to three decimal places.)

A) 30.35%

B) 35.35%

C) 12.25%

D) 25.00%

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Quantitative Methods

AICPA: Global and Industry Perspectives

85) Phocuscorp's stock is currently worth $60. The replicating portfolio consists of one-half share and $24.50 risk-free loan. What is the value of call option?.

A) $5.50

B) $4.50

C) $5.00

D) $6.00

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

86) Assume that the stock of Unmix, Inc., is currently trading for $22 and will either rise to $31 or fall to $18 in one year. Assume the risk-free rate for one year is 0 percent. What is the value of a put option with a strike price of $25? (Round the final answer to two decimal places.)

A) $0

B) $1.85

C) $3.00

D) $4.85

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

87) Assume that the stock of AllSiete, Inc., is currently trading for $44 and will either rise to $50 or fall to $29 in one year. The risk-free rate for one year is 4 percent. What is the value of a put option with a strike price of $40? (Round the final answer to two decimal places.)

A) $0

B) $2.13

C) $3.14

D) $5.54

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

88) Assume that the stock of Phoneeffect, Inc., is currently trading for $16 and will either rise to $23.50 or fall to $9 in one year. The risk-free rate for one year is 3 percent. What is the value of a put option with a strike price of $18 that expires in one year? (Round intermediate computations to three decimal places, but round final answer to two decimal places.)

A) $0

B) $2.75

C) $4.23

D) $5.73

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

89) Assume that the stock of TuneSeis, Inc. is currently trading for $29 and will either rise to $32 or fall to $5 in one year. The risk-free rate for one year is 2 percent. What is the value of a put option with a strike price of $30? (Round intermediate computations to three decimal places, but round final answer to two decimal places.)

A) $0

B) $0.41

C) $1.78

D) $2.20

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

90) Assume that the stock of Mixtoss, Inc., is currently trading for $18 and will either rise to $30 or fall to $12 in one year. Assume the risk-free rate for one year is 0 percent. What is the value of a put option with a strike price of $15? (Do not round intermediate computations.)

A) $0

B) $2

C) $5

D) $6

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

91) If the value of the underlying asset is well above the exercise price of a put option, then:

A) it is likely that the option will be exercised by the buyer.

B) the exercise price remains constant irrespective of the change in the value of the underlying asset.

C) the value of the option is directly proportional to the value of the underlying asset.

D) the seller of the option will most likely make a profit.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

92) Assume that the stock of Statrec, Inc., is currently trading for $2.60 and will either rise to $10 or fall to $0 in one year. The risk-free rate for one year is 1 percent. What is the value of a put option with a strike price of $5? (Round all computations to two decimal places.)

A) $0

B) $2.35

C) $3.65

D) $3.80

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

93) You own a share of common stock in Vibrapower, Inc., which is currently trading for $18 and will either rise to $30 or fall to $12 in one year. Assume the risk-free rate for one year is 0 percent. You also own an American put option on the stock with a strike price of $20, which expires in one year. What is the value of the put option, and what would be the net payoff from exercising the option now? (Round intermediate computations to three decimal places, but round final answer to two decimal places.)

A) Option value: $3.33, Net payoff $2

B) Option value: $3.33, Net payoff $6

C) Option value: $5.34, Net payoff $2

D) Option value: $5.34, Net payoff $6

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

94) You are fortunate enough to own a put option with a strike price of $40 on the stock of Osmerc, Inc. The current stock price is $3. When the option expires, you expect the stock price to be either $2 or $5. Assume the risk-free rate of interest is zero. What is the value of your put option?

A) $0

B) $35

C) $37

D) $46

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

95) Assume that the stock of EffeUn, Inc. is currently trading for $16 and will either rise to $18 or fall to $12 in one year. The risk-free rate for one year is 1 percent. What is the value of a put option with a strike price of $10?

A) $0

B) $2.00

C) $2.33

D) $5.00

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

96) Assume that the stock of ABC, Inc., is currently trading for $21 and will either rise to $30 or fall to $18 in one year. Assume the risk-free rate for one year is 0 percent. You own a portfolio that consists of one call option and one put option. Both options have a strike price of $25, and both expire in one year. What is the value of your portfolio? (Round intermediate computations to three decimal places, but round final answer to two decimal place.)

A) $4.50

B) $25.01

C) $6.00

D) $6.51

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

97) Assume that the stock of DiezEight, Inc., is currently trading for $16 and will either rise to $50 or fall to $2 in one year. The risk-free rate for one year is 8 percent. You own a portfolio that consists of one call option and one put option. Both options have a strike price of $15, and both expire in one year. What is the value of your portfolio? (Round intermediate computations to three decimal places, but round final answer to two decimal places.)

A) $0

B) $15.64

C) $21.40

D) $18.52

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

98) Consider two call options written on different stocks. Both call options have a strike price of $15 and expire one year from today. The first option is written on HearFour, Inc., whose current stock price is $16. One year from now, shares of HearFour will either rise to $18 or fall to $14. The second option is written on EsoOne, Inc., whose current stock price is also $16. In one year, shares of EsoOne Inc. will either rise to $22 or fall to $0. The risk-free interest rate is 0 percent. Which call option is worth more?

A) The call option on HearFour, is worth more.

B) The call option on EsoOne is worth more.

C) They are both worth the same amount.

D) There is not enough information to make a comparison.

Learning Objective: LO 2

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

99) Consider a call option and a put option both written on Neunlay, Inc. stock. Both options have a strike price of $20 and expire in one year. The stock of Neunlay, Inc., is currently selling for $20. In one month the stock will be at either $24 or $18. Assume the risk-free rate is 0 percent. Which is worth more, the put option or the call option?

A) The put option is worth more.

B) The call option is worth more.

C) They are worth the same.

D) There is not enough information.

Learning Objective: LO 2

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

100) The value of call option can never be less than:

A) $0.

B) $1.

C) the strike price.

D) the value of the underlying asset.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

101) When we consider the value of a call option that has not expired, we must:

A) compare the current value of the underlying asset with the present value of the cash flow from the underlying asset, discounted at the risk-free rate.

B) compare the current value of the underlying asset with the present value of the exercise price, discounted at the risk-free rate.

C) compare the current value of the underlying asset with the present value of the cash flow of the underlying asset, discounted at the nominal rate.

D) compare the current value of the underlying asset with the present value of the exercise price, compounded at the nominal rate.

Learning Objective: LO 2

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

102) Which of the following is true of a call option?

A) The value of a call option must be less than or equal to $0.

B) The value of a call option cannot be lower than the value of the underlying asset.

C) The value of a call option prior to expiration will never be less than the value of the option if it were exercised immediately.

D) A call option protects the seller from price volatility.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

103) Calculate the value of put option using put-call parity model with the given information. Value of the call option is $6.20, exercise price is $58, risk-free rate of interest is 5.5 percent, time before the option expires is one year and the current value of underlying assets is $52. Consider the value for e as 2.71828.

A) $9.10

B) $12.20

C) $6.20

D) $8.92

Learning Objective: LO 2

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

104) Trerec Co. is a privately-owned oil drilling and refinery company with a significant amount of debt. Most of the company's cash flows come from the financially stable refinery unit of the business. With only the assets in place, the company is very likely to avoid financial distress at least for the next 12 months. The company is considering a new positive-NPV oil drilling project. Because of the nature of oil prices, the project is very risky. At any oil price above $115, the project would add value to the company. However, if oil prices were to fall below $95 the losses could push the entire business into financial distress. Assume the risk-free interest rate is 0 percent. Which of the following strategies would allow the firm to pursue the positive NPV project while hedging the oil price risk?

A) The firm purchases call options with a strike price of $130 for each barrel of oil it expects to produce. Each option costs $6.

B) The firm sells call options with a strike price of $130 on each barrel of oil it expects to produce. Each option costs $6.

C) The firm purchases put options with a strike price of $130 on each barrel of oil it expects to produce. Each option costs $6.

D) The firm sells put options with a strike price of $130 on each barrel of oil it expects to produce. Each option costs $6.

Learning Objective: LO 5

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

105) Consider a corn farmer who expects to produce 55,000 bushels of corn at the end of this season. To hedge the risk associated with corn prices, the farmer purchases put options to cover his entire crop. The put options have a strike price of $8.50 per bushel and a premium of $0.40 per bushel. He also sells an equal amount of call options with a strike price of $8.50 per bushel and a premium of $0.53 a bushel. Which of the following statements is correct?

A) From this transaction, the farmer can pocket $7,500 immediately.

B) If corn prices go up substantially, the farmer will earn more money.

C) The put options guarantee that the farmer will receive at least $7.63 per bushel at the end of the season.

D) The farmer has guaranteed himself that he will sell his corn for $8.50 a bushel.

Learning Objective: LO 5

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

106) Consider a lease agreement recently offered by a car dealership. The agreement gives the customer the right to use a new SUV for four years in exchange for payments of $650 per month. At the end of the lease, the customer can choose to purchase the SUV for $18,000. What sort of option does this resemble?

A) A put option on the SUV with a strike price of $18,000

B) A call option on the SUV with a strike price of $18,000

C) A put option on the SUV with a strike price of $17,800

D) A call option on the SUV with a strike price of $17,800

Learning Objective: LO 5

Bloomcode: Application

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

107) Neunlay Inc., is a manufacturer of residential air conditioning equipment. Air conditioning equipment requires a lot of copper. In six months the company will purchase its copper supply for the next two years. Management is very concerned about the volatility of copper prices. Assume the risk-free rate of interest is 0 percent. Which of the following transactions will ensure the company does not have to pay more than $6,100 per ton of copper six months from now?

A) The company purchases a put option for the necessary amount of copper with a strike price of $6,000 per ton, a premium of $100 per ton, and an expiration date six months from now.

B) The company purchases a call option for the necessary amount of copper with a strike price of $6,000 per ton, a premium of $100 per ton, and an expiration date six months from now.

C) The company sells a put option for the necessary amount of copper with a strike price of $6,000 per ton, a premium of $100 per ton and an expiration date six months from now.

D) The company sells a call option for the necessary amount of copper with a strike price of $6,000 per ton, a premium of $100 per ton, and an expiration date six months from now.

Learning Objective: LO 5

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

108) Describe the difference between American call options and American put options. Include in your answer a description of the option premium, the option strike price, the expiration date, and the payoff function.

Learning Objective: LO 1

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

109) Name the factors that affect the value of a call option and explain the direction of the effects.

Learning Objective: LO 2

Bloomcode: Knowledge

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

110) You are brought in to consult on a project for Sanpharm Corp., which is considering whether or not to build a new high-tech steel manufacturing facility. Give four examples of real options that you would consider when evaluating the project.

Learning Objective: LO 3

Bloomcode: Analysis

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

111) What are agency costs in corporate finance, and how do they relate to options?

Learning Objective: LO 4

Bloomcode: Comprehension

AACSB: Analytic

IMA: Corporate Finance

AICPA: Global and Industry Perspectives

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