A company announces a major expansion which causes the price of its stock to increase and also causes an increase in the standard deviation (or volatility) of stock returns. How will these two market reactions affect the value of put options on the firm’s stock? A) Both reactions decrease the value of the put options. B) Both reactions increase the value of the put options. C) The change in volatility will not affect put option values while the increased stock price will decrease the put option values. D) The reactions will have offsetting effects on put option values.

A company announces a major expansion which causes the price of its stock to increase and also causes an increase in the standard deviation (or volatility) of stock returns. How will these two market reactions affect the value of put options on the firm’s stock? A) Both reactions decrease the value of the put options. B) Both reactions increase the value of the put options. C) The change in volatility will not affect put option values while the increased stock price will decrease the put option values. D) The reactions will have offsetting effects on put option values.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 26CYBK

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Similar questions

According to the efficient market theory, whenever investors find that the required return of stock is less than the expected return of the stock, the investor will buy the stock. This will: a. drive the price up b. cause the market to crash c. drive the price down d. not affect the price
Which of the following statement(s) is(are) TRUE? (i) The valuation price of a stock primarily depends on expected future dividends to its shareholders and its required rate of return. (ii) An investor who intends to sell a stock after holding it for a short period will forgo all future dividends, thus will be willing to pay for a lower price for the stock compared to another investor who prefers to hold the share for a longer period. (iii) The valuation share price is positively related to the share's required rate of return.
Telstra announces a major expansion into Internet services. This announcement causes the price of Telstra stock to increase, but also causes an increase in the volatility of the stock price. Which of the following correctly identifies the impact of these changes on the price of Telstra call options? A. The greater uncertainty will cause the price of the call option to increase. The higher price of the stock will cause the price of the call option to decrease. B. Both changes cause the price of the call option to decrease. C. Both changes cause the price of the call option to increase. D.The greater uncertainty will cause the price of the call option to decrease. The higher price of the stock will cause the price of the call option to increase.
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall
Which of the following will increase the price of a stock? Group of answer choices: A. Decrease in the required rate of return B. Decrease in the dividend growth rate C. Delay in the payment of dividends D. Decrease in earnings growth
Evaluate the following statement: When a firm pays dividend, its stock price decreases in the market. Therefore, it is always better to buy a stock on the date of dividend payment.
you MUST explain your answer. Also, explain why 1 or 2 of the other options are FALSE: >>> Which of the following statements is CORRECT? a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock. b. Two firms with the same expected dividend and growth rate must also have the same stock price. c. It is appropriate to use the constant growth model to estimate a stock’s value even if its growth rate is never expected to become constant. d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock’s dividend yield is also 5%. e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
An analyst is trying to determine the intrinsic value of a certain share. Which of the following is true with regards to the methods of stock valuation? a. Discounting techniques does not involve forecasting future dividends b. Free cash flow is important in discounted dividend model c. Aside from the intrinsic value, the market value of the firm can also be determined by free cash flow model d. Non-constant growth stock is valuated in the same way as preferred stock
You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think a. the stock should be sold. b. the stock is a good buy. c. management is probably not trying to maximize the price per share. d. dividends are not likely to be declared. e. the stock is experiencing supernormal growth.
Particulars 1. Discount rate АВС XYZ 18.5% 14.25% Not 2. Historical growth rate 2.2218% available 3. Sustainable growth 4.5% 20% rate 4. Fundamental value of stock using dividend growth model through historical growth rate 5. Fundamental value of stock using dividend growth model through sustainable growth rate 6. Fundamental value of stock using residual income growth model through historical growth rate 7. Fundamental value of stock using residual income growth model through sustainable growth rate Not Tavailable 3395 Not available 3953 Not 427.30 available 420.35 1 96.5
АВС XYZ Discount rate (r) Historical growth rate of 0.015+2*0.085=0.185 0.015+1.5*0.085=0.142 (58/30)^(1/30)-1=0.022 Not available. Cannot dividends compute without dividends Sustainable growth rate Fundamental value using dividend growth model with the historical growth rate Fundamental value using the 467*(1+0.185)/(0.185-0.045) dividend growth model with =3953 the sustainable growth rate Fundamental value using residual income growth 0.15*(1-0.7)=0.045 467*(1+0.185)/(0.185-0.022) 0.2*(1-0)=0.2 Not available. Cannot =3395 compute without dividends Not available. Cannot compute without dividends 80*(1+0.022)-(550*0.022)/(0. 185-0.022)=427.36 Not available. Cannot compute without dividends model with the historical growth rate Fundamental value using the 80*(1+0.045)-(550*0.045)/(0. residual income growth 12*(1+0.2)-(100*0.2)/(0.142- 0.2)=96.5 185-0.045)=420.35 model with the sustainable growth rate