Which of the below statements is false about real options? A. Real options increase firm value B.Investing in a project can be priced as an American call option C.Abandoning a project can be priced as an American put option D.Growth options have no impact on the market value of the firm

Which of the below statements is false about real options? A. Real options increase firm value B.Investing in a project can be priced as an American call option C.Abandoning a project can be priced as an American put option D.Growth options have no impact on the market value of the firm

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Select all of the following statements that accurately compare or contrast forwards and options: Group of answer choices Taking naked long positions in either a call or forward will lead to an overall long position in the underlying security. Options and forwards always have identical payoffs if the spot price remains the same. Both options and forwards can be used to reduce exposure to foreign exchange risk. Going long a naked put option and going short a naked forward both cause unlimited liability. Both options and forwards require the payment of a premium at the initiation of the contract. Forward contracts impose obligations on both parties in the transaction. Options contracts only impose an obligation on one party.
37. If the semi-strong form of efficient market hypothesis does not fully hold, then active portfolio management could: a. Perform as well as the market. b. Out-perform the market. c. Under-perform passive investment strategies. d. Perform the same as passive investment strategies. e. Cannot be determined from the information given.
(a) What is the expected shape of a futures curve for cotton (a storable commodity)? What about for live hogs (a non-storable commodity)? (b) Explain why a rational economic agent may still choose to hold stocks even if the expected return on stocks is negative.
Which of the following is TRUE? An American call option on a stock should never be exercised early O An American call option on a stock should not be exercised early when no dividends are expected O It can be optimal to exercise early an American call option on a stock when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should be exercised early when no dividends are expected
If underlying is non-dividend paying, then the time value of an American call option is positive, hence American call should never be exercised early. True False
Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
[S1] An American option would be more valuable than a European option. [S2] When the price of the underlyingasset is greater than the exercise price of the option, then a call option would be more valuable than a putoption. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.
Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.
Wolseley manufacturing Co. invests in a group of risky projects, which increases the unsystematic risk of the firm, but does not change the systematic risk of the firm. All else the same, the expected risk premium on its common stock is most likely to: Select one: a. Increase, because the difference between the expected return on the firm's stock and the risk-free rate will widen. b. Increase or decrease, depending on the internal rate of return of the new projects. c. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will widen. d. Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will narrow. e. Remain unchanged, because the level of systematic risk is unchanged.

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