QUESTION 20

An option is a contract which gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time.

True

False

QUESTION 21

The exercise price is the price that must be paid for a share of common stock when it is bought by exercising a warrant.

True

False

QUESTION 22

Albany Motors recently completed a 3-for-1 stock split. Prior to the split, the company had 10 million shares outstanding and its stock price was $150 per share. After the split, the total market value of the companys stock equaled $1.5 billion. What was the price of the companys stock following the stock split?

		$ 15
		$ 45
		$ 50
		$150
		$450

QUESTION 23

A stock is currently selling for $20. In three months (91 days), the stock price will be either $30 or $11. If you are considering a call option for this stock with an exercise price of $21, what would be the value of this option today? The risk free rate of return is 4.5%.

		$18.79
		$4.32
		$8.90
		$9.23

QUESTION 24

Target-Mart is planning a new store in Greenwich. The company will lease the needed space for 9 years. Equipment and fixtures for the store will cost $500,000 and will be depreciated totally using the straight-line depreciation method. In addition, inventories valued at $50,000 will also be needed to stock the store at the current time (before opening). Sales are expected to be $1.5 million each year. Operating expenses, ignoring depreciation, will be $750,000 each year. The firm will liquidate the inventory at the end of the 9-year period. The corporate tax rate is 34%. The WACC for Target-Mart is 13.75%.

What is the NPV of this project?

		$2,151,238
		$2,030,850
		$878,360
		$2,220,650

QUESTION 25

The price at which the stock or asset may be purchased from (or sold to) the option writer is referred to as the __________.

		option premium
		open interest
		intrinsic value
		strike price