1.In the Black-Scholes formula, N(d₁) and N(d₂) are probabilities and therefore take values between 0 and 1.

TRUEFALSE

2 .The smaller the time periods used in the binomial model the closer it will come to approximating the Black-Scholes' model price.

TRUEFALSE

3. As stock price volatility increases, call option prices rise and put option prices fall.

TRUEFALSE

4. Buying a stock, buying a Put on the stock, and selling a Call on the stock puts one at risk of loss if the stock price increases.

TRUEFALSE

5. Buying a stock and selling a Call option on that stock puts one at risk of loss if the stock price increases.

TRUEFALSE

6. If the annual returns for a stock have a variance of 14%, the 6-month downside change in value used in the binomial method of option pricing is -18% .

TRUEFALSE

7.The rule for comparing machines with different lines is to select the machine with thegreatest equivalent annual cost (EAC).

TRUEFALSE

8. . An investor that "sells a share short" is betting that the share price will go down .

TRUEFALSE

9. Increased debt in a firm increases the return required by equity holders on shares in that firm.

TRUEFALSE

10.Firm with higher fixed costs as a percentage of all costs will have a higher Opportunity Cost of Capital than similar firms with lower fixed costs.

TRUEFALSE

11.Interest paid to bond holders is tax deductible to a company. .

TRUEFALSE

12. The Beta of an asset is never less than the Beta of its Revenue.

TRUEFALSE

13.Risky projects can be evaluated by discounting the expected cash flows at a risk-adjusted discount rate.

TrueFalse

14.Risky projects can be evaluated by discounting certainty equivalent cash flows at the risk-free interest rate.

TrueFalse

15. The Certainty equivalent of a project cash flow of $101 in year 2 would be $88.52 if the OCC were 10% and the risk free rate were 5%.

TRUEFALSE

16. The Certainty equivalent of a project cash flow of $101 in year 2 would be $96.41 if the OCC were 10% and the risk free rate were 5%.

TRUEFALSE

17. TheCompany cost of capital is the cost of equity of the firm.

TRUEFALSE

18.It is generally more accurate to estimate an "industry beta" for a portfolio of companies in the same industry than to estimate beta for a single company

TRUEFALSE