Option Rise true or false: The unsystematic risk of a share of stock is irrelevant in valuing
Question:
Option Rise true or false: The unsystematic risk of a share of stock is irrelevant in valuing the stock because it can be diversified away; therefore, it is also irrelevant for valuing a call option on the stock. Explain.
Step by Step Answer:
False The value of a ca...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
Related Video
A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.
Students also viewed these Corporate Finance questions
-
The fundamental value of a share of stock is based on the present value of expected future a. Dividends. b. Revenues. c. Profits. d. Costs.
-
True or False The identity matrix has properties similar to those of the real number 1.
-
True or False The best choice for savings above and beyond what is required for liquidity purposes is lowrisk, lowreturn investments
-
Mango Designs began selling its custom furniture on June 1, 2020. At the end of the month, the special journals showed the following results. Other information you will need is as follows: ? Interest...
-
A boy pulls a bag of baseball bats across a ball field toward the parking lot. The bag of bats has a mass of 6.80 kg, and the boy exerts a horizontal force of 24.0 N on the bag. As a result, the bag...
-
Ms. Timmons, an unmarried individual, has the following income items. Schedule C net profit ............................................ $31,900 NOL carryforward deduction...
-
1-8. Cul es la diferencia entre consumidores finales y compradores organizacionales?
-
Job costing with single direct-cost category, single indirect-cost pool, law firm. Wigan Associates is a recently formed law partnership. Ellery Hanley, the managing partner of Wigan Associates, has...
-
9 While floating-rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-payment mortgages, floating-rate loans may increase a lender's exposure to which of the...
-
Illustrate how fine-line inventory classification can be used with product and market segments. What are the benefits and considerations when classifying inventory by product, market, and...
-
Options and Stock Risk if the risk of a stock increases, what is likely to happen to the price of call options on the stock to the price of put options why?
-
Option pricing suppose a certain stock currently sells for $30 per share if a put option and a call option are available with $30 exercise prices, which do you think will sell for more, the put or...
-
Use substitution (as in Example 4) to find the Taylor series at x = 0 of the functions. 5sin (-x) EXAMPLE 4 Using known series, find the first few terms of the Taylor series for the given function...
-
Matthew Kennedy of Urbana, Ohio, is single and has been working as an admissions counselor at a university for five years. Matthew owns a home valued at $250,000 on which he owes $135,000. He has a...
-
Question: A group of employees of Unique Services will be surveyed about a new pension plan. In-depth interviews with each employee selected in the sample will be conducted. The employees are...
-
On January 1, 2020, the following accounts appeared in the general ledger of Ace's Repair Shop: Cash P10,500 Accounts receivable 8.400 Furniture 12,600 Repair Equipment 54,000 Accounts Payable 22,000...
-
Your maths problem x+3x-3 Find solutions on the web Q +1 XII
-
5. Data for the payroll for the Dos Company for the month of April are shown below: Total gross earnings Social security taxes withheld Phil Health taxes withheld Employees income tax withheld...
-
What did Nancy do right?
-
(a) Find the equation of the tangent line to f(x) = x 3 at the point where x = 2. (b) Graph the tangent line and the function on the same axes. If the tangent line is used to estimate values of the...
-
The current price of a stock is 200, and the continuously compounded risk-free interest rate is 4%. A dividend will be paid every quarter for the next 3 years, with the first dividend occurring 3...
-
Payback Period and Net Present Value If a project with conventional cash flows has a payback period less than the projects life, can you definitively state the algebraic sign of the NPV? Why or why...
-
Net Present Value Suppose a project has conventional cash flows and a positive we NPV. What do you know about its payback, its discounted payback, its profitability index, its IRR? Explain.
-
Net Present Value Suppose a project has conventional cash flows and a positive we NPV. What do you know about its payback, its discounted payback, its profitability index, its IRR? Explain.
-
Which of the following statements is true? Financial measures tend to be lag indicators that report on the results of past actions. LA profit center is responsible for generating revenue, but it is...
-
Andretti Company has a single product called a Dak. The company normally produces and sells 8 0 , 0 0 0 Daks each year at a selling price of $ 5 6 per unit. The company s unit costs at this level of...
-
What are the major characteristics of plant assets? Choose one category of PP&E (land, land improvements, buildings or equipment) and describe the costs that may be capitalized with this asset.
Study smarter with the SolutionInn App