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11.Consider a put option a stock with a strike price

Question : 11.Consider a put option a stock with a strike price : 1400609

 

11.Consider a put option on a stock with a strike price of $60. If the stock price at expiration is $50, the payoff from the put option is $10.

a.True

b.False

12.Suppose you have sold a put option on a stock with a strike price of $25. If the stock price at expiration is $30, your payoff will be $–5.

a.True

b.False

13.A portfolio consisting of one put option and one call option, both with the same exercise price, is called a straddle. A straddle is a good investment strategy for investors who don’t know whether an asset’s value is likely to go up or down, but think that the volatility of the asset will increase.

a.True

b.False

14.If a project has a positive NPV, then the real options that affect the project are not important to estimating the value of the project.

a.True

b.False

15.The option to defer investment can be characterized as the flexibility to wait and learn more information about a project before committing resources to the project.

a.True

b.False

16.Incorporating real options will not decrease the value of the project relative to the basic NPV analysis.

a.True

b.False

17.After taking into account the value of real options, it is possible that some projects with a negative NPV should be pursued.

a.True

b.False

18.A company is negotiating for the option to develop a platinum mine. Under the terms of the option contract, the company would be able to purchase the development rights to the mine one year from now for an exercise price specified today. If, during the negotiations over the option contract, the volatility of the price of platinum increases, the company should expect to pay a higher price for the development option.

a.True

b.False

19.The option to abandon a project can decrease its value.

a.True

b.False

20.Kelvin’s Thermostats Co. sells equipment to residential and commercial customers. It is considering whether or not to develop a new line of advanced commercial thermostats. The discounted cash flows from commercial thermostat sales are not likely to cover the development costs. However, the company has decided to pursue the project anyway. If the commercial technology is successful, it might be applied to a new line of very profitable residential thermostats. This is an example of the option to make follow-on investments.

a.True

b.False

 

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