Question
Question 1 ) a) Which of the following statements is correct? A. To estimate the equity value, we can discount all cash flows to equity
Question 1 )
a)
Which of the following statements is correct?
A. | To estimate the equity value, we can discount all cash flows to equity using the cost of capital. | |
B. | Net cash flows are defined as cash flows after taxes, expenses, and interest payments to debtholders. | |
C. | The current intrinsic value for a stock is simply the present value of all expected future dividend payments. | |
D. | Firms with high P/E ratios usually have low ROEs. |
b)
If options are priced correctly, the premium of a call should be lower when its strike price is ___, and the premium of a put should be higher when the strike price is ___.
A. | Lower, lower | |
B. | Lower, higher | |
C. | Higher, lower | |
D. | Higher , higher |
c)
You are creating an option strategy by using calls and puts that have the same strike price. Which of the following strategies will make a profit if the stock price decreases but will have a loss if the stock price increases?
A. | Sell a call and buy a put | |
B. | Buy a call and sell a put | |
C. | Buy a call and buy a put | |
D. | Sell a call and sell a put |
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