15min time limit

1)

A convertible bond is

a.

like a straight bond plus a warrant, but the warrant in the convertible bond cannot be sold separately

b.

like stock plus a put option on the stock

c.

like stock plus a call option on a straight bond

d.

like a straight bond plus a call option on the stock

e.

A and B

f.

A and C

g.

A and D

h.

B and C

i.

B and D

j.

C and D

k.

all but A

l.

all but B

m.

all but C

n.

all but D

o.

all are true

p.

none are true

2)

Hedging

a.	is like having insurance
b.	reduces return
c.	reduces risk
d.	is a trade-off between risk and return
e.	A and B
f.	A and C
g.	A and D
h.	B and C
i.	B and D
j.	C and D
k.	all but A
l.	all but B
m.	all but C
n.	all but D
o.	all are true
p.	none are true

3)

Viewing things in terms of options

a.	stock can be viewed in terms of a put option on the firm's assets
b.	stock can be viewed in terms of a call option on the firm's assets
c.	insurance can be viewed in terms of a put option on the insured asset
d.	insurance can be viewed in terms of a call option on the insured asset
e.	A and B
f.	A and C
g.	A and D
h.	B and C
i.	B and D
j.	C and D
k.	all but A
l.	all but B
m.	all but C
n.	all but D
o.	all are true
p.	none are true

4)

You ask a staff person to get you some financial information. The staffer returns with the following information: a stock is selling for $28.07, a call option expiring in 8 months with a strike price of $30 is selling for $2.60, and a put option expiring in 9 months with a strike price of $30 is selling for $2.01.

a.	surely the stock price is wrong
b.	surely the call value is wrong
c.	surely the put value is wrong
d.	surely the strike price is wrong
e.	A and B
f.	A and C
g.	A and D
h.	B and C
i.	B and D
j.	C and D
k.	all but A
l.	all but B
m.	all but C
n.	all but D
o.	all are true
p.	none are true

5

A bond can be redeemed by its owner for its face value after either 5 or 10 years. So at the end of 5 years, the bondholder must make a one-time choice to either redeem the bond then or let it continue for 5 more years. This complex financial security can be described as

a.	10-year straight bond plus a 5-year call option on it
b.	a 10-year straight bond plus a 5-year put option on it
c.	a 5-year straight bond plus a 5-year call option on another 5-year straight bond
d.	a 5-year straight bond plus a 5-year put option on another 5-year straight bond
e.	A and B
f.	A and C
g.	A and D
h.	B and C
i.	B and D
j.	C and D
k.	all but A
l.	all but B
m.	all but C
n.	all but D
o.	all are true
p.	none are true

6

Suppose you own a convertible bond that has a 6.1% coupon (paid semi-annually), $1,000 par value, matures in 11 years, and is currently selling for $1,783.54 in the bond market. The bond can be converted into 38 shares of the firm's common stock, and the common stock is currently selling for $45.72 per share.

What is this bond's yield to maturity?

a.	-0.7285%
b.	-0.5129%
c.	-0.3643%
d.	-0.2547%
e.	0.0000%
f.	0.2547%
g.	0.3643%
h.	0.5129%
i.	0.7285%

7

Suppose you own a convertible bond that has a 6.1% coupon (paid semi-annually), $1,000 par value, matures in 11 years, and is currently selling for $1,783.54 in the bond market. The bond can be converted into 38 shares of the firm's common stock, and the common stock is currently selling for $45.72 per share.

Should you convert the bond into shares of stock? Hint: Think carefully (in terms of the "big picture") before answering.

You're answer should either start with "Yes, because" or "No, because."

8

A stock currently sells for $67.38. A call option expiring in 8 months with a strike price of $70 sells for $4.63. A put option with the same strike price and maturity sells for $5.93. What APY (effective annual) riskless rate of return is implied by these stock and option prices?

a.	1.8857%
b.	1.9220%
c.	2.3529%
d.	2.4851%
e.	2.6913%
f.	2.8159%
g.	2.8967%
h.	2.9736%
i.	3.0279%
j.	3.1474%