multiple choice qs

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multiple choice qs....

1)     Curt Jones purchases a Call Option on IDM for $3.00. The option's strike price (X) is $55. Assuming IDM's current stock price (S) is $45, what is the intrinsic value of the option?

A.

$0.00

B.

-$13.00

C.

$10.00

D.

-$10.00

 

Sand 5th Avenue borrows $350 million from Trust Bank. It invests $250 million in a new generator and uses the rest, $100 million, to invest in high-yield Certificate of Deposit. What is the impact of this transaction on Sand's balance sheet?

A.

Assets increase by $250 million

B.

Shareholder equity increases by $100 million

C.

Net income increases by $100 million

D.

Liabilities increase by $350 million

 

1.     A security's total risk is composed of its___ and ___

A.

Beta and idiosyncratic risk

B.

Beta and market risk

C.

Specific risk and firm-specific risk

D.

Aggressive risk and defensive risk

 

Which of the following actions will increase a firm's cash balance, all else equal.

A.

Purchase of a new equipment

B.

Issuance of debt

C.

A decrease in accounts payable

D.

An increase in inventory

1.     What is the most likely explanation for a 30% return on a stock with a beta of 1.0 in a month when the market returned 12.5%?

A.

The market is undervalued

B.

The stock is aggressive

C.

The beta is really 0.5

D.

Favorable firm-specific (idiosyncratic) news was reported

1.     To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's

A.

Pre-tax cost of debt

B.

Weighted-average cost of capital

C.

CAPM-derived cost of equity

D.

Weighted-average cost of debt