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Original Title: 74_Quiz Equity and Options.pdf

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Nama/
NPM:

1. Calculate
the
value
of
a
stock
that
paid
a
$1
dividend
last
year,
if
nc:n
year's

dividend
will
be
5%
higher
and
the
stock
will
sell
for
$13.45
at
year-end.
The

required
return
is
13.2%.

2. A
stock
recently
paid
a
dividend
of
$1.00
which
is
expected
to
grow
at
5%
per

year.
The
requited
rate
of
return
of
13.2%.
Calculate
the
value
of
this
stock

assuming
that
it
will
be
priced
at
$14.12
two
years
from
now.

3. A
company's
$100
par
preferred
stock
pays
a
$5.00
annual
dividend
and
has

a
required
return
of
8%.
Calculate
the
value
of
the
preferred
stock.

4. Calculate
the
value
of
a
stock
that
paid
a
$2
dividend
last
year,
if
dividends

are
expected
to
grow
at
5%
forever
and
the
required
return
on
equity
is
12%.

5. Using
the
data
from
the
previous
exercise,
calculate
how
much
of
the

estimated
stock
value
is
due
to
dividend
growth.

6. Green,
Inc.,
is
expected
to
pay
dividends
equal
to
25%
of
earnings.
Green's

ROE
is
21%.
Calculate
and
interpret
its
sustainable
growth
rate.

7. A
firm
currently
pays
no
dividend
but
is
expected
to
pay
a
dividend
at
the
end

of
Year
4.
Year
4
earnings
are
expected
to
be
$1.64,
and
the
firm
will
maintain

a
payout
ratio
of
50%.
Assuming
a
constant
growth
rate
of
5%
and
a
required

rate
of
return
of
10%,
estimate
the
current
value
of
this
stock.

8. Consider
a
stock
with
dividends
that
are
expected
to
grow
at
20%
per
year

for
four
years,
after
which
they
are
expected
to
grow
at
5%
per
year,

indefinitely.
The
last
dividend
paid
was
$1.00,
and
k,
=
10%.
Calculate
the

value
of
this
stock
using
the
multistage
growth
model.

9. A
firm
has
an
expected
dividend
payout
ratio
of
60%,
a
required
rate
of

return
of
11%,
and
an
expected
dividend
gmwth
rate
of
5%.
Calculate
the

firm's
fundamental
(justified)
leading
P/E
ratio.

10. Holt
Industries
makes
decorative
items.
The
figures
below
are
for
Holt
and
its

industry.

Holt
Industries
Industry
Average

Dividend
Payout
Ratio
25%
16%

Sales
growth
7.5%
3.9%

Total
Debt
to
Equity
113%
68%

Which
of
these
factors
suggest
a
higher
fundamental
P/E
ratio
for
Holt?

Quiz

11. Knappa
Valley
Winery's
(KVW)
most
recent
FCFF
is
$5,000,000.
KVW's
target

debt-to-equity
ratio
is
0.25.
The
market
value
of
the
firm's
debt
is

$10,000,000,
and
KVW
has
2,000,000
shares
of
common
stock
outstanding.

The
firm's
tax
rate
is
40%,
the
shareholders
require
a
return
of
16%
on
their

investment,
the
firm's
before-tax
cost
of
debt
is
8%,
and
the
expected
long-

term
growth
rate
in
FCFF
is
5%.
Calculate
the
value
of
the
firm
and
the
value

per
share
of
the
equity.

12. Ridgeway
Construction
currently
operating
at
a
target
debt-to-equity
ratio
of

0.4.
The
expected
return
on
the
market
is
9%,
the
risk
free
rate
is
4%,
and

Ridgeway
has
a
beta
of
1.5.
The
expected
growth
rate
of
FCFE
is
4.5%.

Calculate
the
value
of
Ridgeway
stock.

13. Consider
a
July
40
call
and
a
July
40
put,
both
on
a
stock
that
is
currently

selling
for
$37/share.
Calculate
how
much
these
options
are
in
or
out
of
the

money.

14. Assume
that
you
own
a
call
option
on
the
S&P
500
Index
with
w
exercise

price
equal
to
950.
The
multiplier
for
this
contract
is
250.
Compute
the
payoff

on
this
option,
assuming
that
the
index
is
962
at
expiration.

15. Assume
you
bought
a
60-day
call
option
on
90-day
LIBOR
with
a
notional

principal
of
$1
million
and
a
strike
rate
of
5%.
Compute
the
payment
that
you

will
receive
if
90-day
LIBOR
is
6%
at
contract
expiration,
and
determine

when
the
payment
will
be
received.

16. Consider
a
call
option
with
a
strike
price
of
$50.
Compute
the
intrinsic
value

of
this
option
for
stock
prices
of
$55,
$50,
and
$45.

17. Suppose
that
both
a
call
option
and
a
put
option
have
been
written
on
a
stock

with
an
exercise
price
of
$40.
The
current
stock
price
is
$42,
and
the
call
and

put
premiums
are
$3
and
$0.75,
respectively.
CaIculate
the
profit
to
the
long

and
short
positions
for
both
the
put
and
the
call
with
an
expiration
day
stock

price
of
$35
and
with
a
price
at
expiration
of
$43.

18. At
expiration,
the
value
of
a
call
option
must
equal:

A.
the
larger
of
the
strike
price
less
the
stock
price
or
zero.

B.
the
stock
price
minus
the
strike
price,
or
arbitrage
will
occur.

C.
the
larger
of
zero,
or
the
stock's
price
less
the
strike
price.

19. 7.
An
investor
writes
a
covered
call
on
a
$40
stock
with
an
exercise
price
of

$50
for
a
premium
of
$2.
The
investor's
maximum:

A.
gain
will
be
$12.

B.
loss
will
be
$40.

C.
loss
will
be
unlimited.

Quiz

have similarly shaped profit/loss diagrams? A:

A. covered call, and a short stock combined with a long call.

B. short put option combined with a long call option, and a protective put.

C. long call option combined with a short put option, and a long stock

position.

21. A put with a strike price of $75 sells for $10. Which of the following

statements is least accurate? The greatest:

A. profit the writer of the put option can make is $10.

B. profit the buyer of a put option can make is $65.

C. loss the writer of a put option can have is $75.

22. An investor will likely exercise a put option when the price of the stock is:

A. above the strike price.

B. below the strike price plus the premium.

C. below the strike price.

23. A put with a strike price of $75 sells for $10. Which of the following

statements is ltast accurate? The greatest:

A. profit the writer of the put option can make is $10.

B. profit the buyer of a put option can make is $65.

C. loss the writer of a put option can have is $75.

24. Which of the following is the riskiest single-option transaction?

A. Writing a call.

B. Buying a put.

C. Writing a put.

25. An investor buys a put on a stock selling for $60, with a strike price of $55 for

a $5 premium. The maximum gain is:

A. $50.

B. $55.

c. $60.

26. A call option sells for $4 on a $25 stock with a strike price of $30. Which of

the following statements is least accurate?

A. At expiration, the buyer of the call will not make a profit unless the stock's

price exceeds $30.

B. At expiration, the writer of the call will only experience a net loss if the

price of the stock exceeds $34.

C. A covered call position at these prices has a maximum gain of $9 and the

maximum loss of the stock price less the premium.

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