1.Shares in stock A are currently trading at $55 and a European call option written on A with a strike price of $40 is currently trading at $15. Stock A is expected to be worth either $100 or $40 next year. The one-year risk-free interest rate is equal to:

A.50%.

B.0%.

C.25%.

D.12.5%.

2.

Consider the following risk-free government bonds with fixed coupons that are paid annually at the end of every year. None of these bonds has any callable or puttable features. Assume that the t=0 coupon has already been paid. The table below reports coupons, market prices, face values and the maturity date for each bond.

Bond	Coupon	Market Price	Face Value	Time to Maturity
A	3%	$100	$100	18 Years
B	4%	$102	$100	18 Years
C	5%	$103	$100	18 Years

After extensive research, you conclude that both bonds B and C are fairly valued. Which of the following claims regarding the value of bond A is correct?

Group of answer choices

A. Bond A is fairly valued.

B.Bond A is overvalued.

C.It is impossible to determine the relative value of bond A.

D.Bond A is undervalued.

3.

Bond A currently has a market price of $98, has two years to maturity, a 2% annual coupon and a face value of $100. Bond B currently has a market price of $99, has two years to maturity, a 1% annual coupon and a face value of $100. Which of the following statements regarding the values of the two bonds is correct?

A. Bond A is overvalued while bond B is undervalued.

B. Both bonds are undervalued.

C. Both bonds are overvalued.

D.Bond A is undervalued while bond B is overvalued.

4.Stock A is currently trading at $67 and is going to be worth either $70 or $60 next year. At the same time, stock B is currently worth $72 and is going to be worth either $90 or $30 next year. What is the value of a maximum option with one year to maturity which pays off the greater of the two stock prices next year, i.e., O₁ = max(S_A1,S_B1)?

Group of answer choices

A. $139.00

B. $81.00

C. $23.33

D. $69.50

5.

In the context of a single-period binomial option pricing model with PV$1_u = $0.15 and PV$1_d = $0.35, we have the following:

Group of answer choices

A. a risk-free rate of 100%, p*_u = 0.30 and p*_d = 0.70.

B. a risk-free rate of 50%, p*_u = 0.35 and p*_d = 0.65.

C. a risk-free rate of 100%, p*_u = 0.70 and p*_d = 0.30.

D. a risk-free rate of 50%, p*_u = 0.15 and p*_d = 0.85.

6.

A high value for the current EV/Book Value of capital is consistent with:

Group of answer choices

A. a low value of the expected growth rate.

B. a large value for Economic Value Added (EVA).

C. a large value of the market risk premium.

D. a high value of the cost of capital.

7.

In the context of the single-period binomial option pricing valuation approach, a stock is currently trading at $6 and will be worth either $9 or $4 next year. A European call option with one year to maturity has a strike price of $4. The replicating portfolio of this European call option consists of:

Group of answer choices

A. buying 1 share of stock and borrowing PV($4) today at the risk-free rate.

B. selling 1 share of stock and borrowing PV($4) today at the risk-free rate.

C. selling 1 share of stock and lending PV($4) today at the risk-free rate.

D. buying 1 share of stock and lending PV($4) today at the risk-free rate.

8.

A company is currently trading at a P/D ratio of 40 and a P/E ratio of 8 and has an ROE of 25%. This company's cost of equity must be equal to:

Group of answer choices

A. 28.125%.

B. 23%.

C. 7.625%.

D. 20%.

9/You can double-glaze the windows of your house at a cost of $5000. The expected savings to your electricity bill are going to be either $2000 per year in perpetuity or $0 per year in perpetuity. From today's point of view, the probability of either event is 50%. However, by waiting one year, you will find out the expected value of the savings with certainty. Your opportunity cost of capital is 25%. What is the value today of the option to wait and find out what the expected savings will be next year?

Group of answer choices

A. $1500.

B. $1200.

C. $1000.

D. $2000.

10.

A large value for the current EV/EBITDA ratio can be caused by:

Group of answer choices

A. a low expected growth rate.

B. a low cost of capital.

C. a low reinvestment rate.

D. a low value of the rate of return on capital, ROC.