Financial Investment Final Exam 1/3

In what industry are investors likely to use the dividend discount model and arrive at a price close to the observed market price?

Utility

Firms with higher expected growth rates tend to have P/E ratios that are __________ the P/E ratios of firms with lower expected growth rates.

higher than

The SEC requires public U.S. companies to file registration statements and periodic reports electronically through

EDGAR.

Supply-side economics tends to focus on __________.

increasing productive capacity

__________ option can only be exercised on the expiration date.

A European

A European call option gives the buyer the right to

buy the underlying asset at the exercise price only at the expiration date

The value of a put option increases with all of the following except

stock price

GDP refers to the

total production of goods and services in the economy

Which of the following is not an example of fiscal policy?

Fed purchases of Treasury securities

A put option with several months until expiration has a strike price of $55 when the stock price is $50. The option has __________ intrinsic value and __________ time value.

positive; positive

In 1973, trading of standardized options on a national exchange started on the

CBOE

Which one of the following is equal to the ratio of common shareholders' equity (from the balance sheet) to common shares outstanding?

Book value per share

The value of a call option increases with all of the following except

dividend yield

Estimates of a stock's intrinsic value calculated with the free cash flow methodology depend most critically on

the terminal value used

A futures call option provides its holder with the right to

purchase a futures contract at a specified price for a specified period of time

Which one of the following describes the amount by which government spending exceeds government revenues?

Budget deficit

A call option on Brocklehurst Corporation has an exercise price of $30. The current stock price of Brocklehurst Corporation is $32. The call option is

in the money

The __________ is the difference between the actual call price and the intrinsic value.

time value

You invest in the stock of Rayleigh Corporation and write a call option on Rayleigh Corporation. This strategy is called a

covered call

A call option with several months until expiration has a strike price of $55 when the stock price is $50. The option has __________ intrinsic value and __________ time value.

zero; positive

Attempting to forecast future earnings and dividends is consistent with which of the following approaches to securities analysis?

Fundamental analysis

Which one of the following is probably the most direct and immediate way to stimulate or slow the economy, although it is not very useful for fine-tuning economic performance?

Fiscal policy

The classification system used to classify firms into industries is now called the __________ code.

NAICS

At expiration of an option contract, which phrase describes the point at which both calls and puts have the same gross profit?

At the money

Which of the following statements about convertible bonds are true?
1. The conversion price does not change over time.
2. The associated stocks may not pay dividends as long as the bonds are outstanding.
3. Most convertibles are also callable at the discretion of the firm.
4. They may be thought of as straight bonds plus a call option.

3 and 4 only

The most widely used monetary policy tool is

open market operations

The __________ of the option is the stock price minus exercise price, or the profit that could be attained by immediate exercise of an in-the-money call option.

intrinsic value

The maximum loss a buyer of a stock call option can suffer is the

call premium

You buy a call option on Merritt Corporation with an exercise price of $50 and an expiration date in July, and you write a call option on Merritt Corporation with an exercise price of $55 and an expiration date in July. This is called a

money spread

A __________ is an option valuation model based on the assumption that stock prices can move to only two values over any short time period.

binomial model

Which of the following describes the rate at which your ability to purchase grows while you hold an interest-earning investment?

The real interest rate