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# Options

### Current Liability, Equity Accounts, Bonds, and Corporations

1. What is a current liability? What is a non-current liability? What is the difference between the two types of liabilities? In which financial statement would you find these liabilities? 2. What are the types of equity accounts? What is the role of equity accounts in raising capital? 3. What are the several different ty

### Charitable Donations with Stocks

On December 5th, 2006, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year she donates \$3800 to charity. She has no other itemized deductions. This year, she plans to make her charitable donations with stock. She presents you with the following information relating to her stock investment: C

### Earning Per Share: Ramirez Corporation

Ramirez Corporation has 500,000 shares of common stock outstanding throughout 2004. In addition, the corporation has 5,000, 20-year, 7% bonds issued at par in 2002. Each \$1,000 bond is convertible into 25 shares of common stock after 9/23/05. During the year 2004, the corporation earned \$600,000 after deducting all expenses. Th

### Calculate: Paid in Capital Excess

Question: Peters Co had two issues of securities outstanding: common stock and an 8% convertible bond issued in the face amount of \$12,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive forth shares of \$20 par value comm

### Call Options

An investor buys 1 XYZ May 60 call at 3.5. What is the investor's break even point? What is his maximum potential gain? why? hat is the investor's maximum potential loss? Why?

### Explain options for corporations to raise capital; why use a particular method?

Explain the different ways a company or corporation can raise capital and why they would use that particular method? The solution has only Book reference.

### Call Options: Exercise Value and Premium

A call option on company A stock has a market price of \$7. The stock sells for \$30 dollars a share, and the option has an exercise price of \$25 a share. 1) What is the exercise value of the call option? 2) What is the premium on the option? Please show calculations.

### Create a Hedging Strategy to Protect the Portfolio

Assume that you manage a \$100 million stock portfolio of which 3% is comprised of GM stock and 3.5% is comprised of Ford stock. Assume that GM and Ford are the only automobile industry holdings in the portfolio. Assume that you are bearish on the automobile industry over the next six months and neutral to bullish on all other in

### Options: Which Event Will Increase the Value of a Call?

What event is likely to increase the market value of a call option on a common stock? Explain.

### Put Call Parity and Value of a Put

The current price of a stock is \$33 and the annual risk free rate is 6%. A call option with a strike price of \$32 and 1 year until expiration has a current value of \$6.56. What is the value of a put option written on the stock with the same strike price and expiration date as the call option?

### How a Change in Each Factor Affects the Option's Value

There are five factors that determine the value of an American call option. They are the price of the underlying asset, the strike price of the option, the time to expiration of the option, the volatility of the underlying asset and the interest rate. Explain how a change in each factor affects the option's value.

### Option Puts for File Co: put-call parity

The common stock of File Co. is selling at \$90. A 26-week call option written on file's stock is selling for \$8. The call's exercise price is \$100. The risk-free rate is 10% per year. 1. Suppose that puts on File Co stock are not traded, but you want to buy one. How would you do it? 2. Suppose that puts are traded. What s

### European call option: calculate cash flow on expiration

Louis holds a six-month European call option contract on Hurricanes, Inc., a non-dividend paying common stock. Each contract is for 100 options. The exercise price of each call option is \$100 and the option will expire in moments. Assume that there are no transaction costs or taxes associated with the contract. a. What is

### Price of an equivalent put option

Given the following data: Expiration = 6 months; Stock price = \$80; exercise price = \$75; call option price = \$12; risk-free rate = 5% per year. Calculate the price of an equivalent put option using put-call parity

### Assume that the U.S. interest rate fall relative too British interest rate.

4-3; Interest rate effects on Exchange Rates. Assume that the U.S. interest rate fall relative too British interest rate. Other things being equal, how should this effect the (a) U.S. demand for British pounds (b) supply of pounds for sale, and (c) equilibrium value of the pound? 4-8; Factors Affecting Exchange Rates. What f

### 1. Is a current liability a debt that can be expected to be paid in one year. Is this correct? Explain. 2. Identify three taxes commonly withheld by the employer from an employee's gross pay. 3. Identify three taxes commonly paid by employers on employees' salaries and wages. (b) Where in the financial statements does the employer report taxes withheld from employees' pay? 4. What are long-term liabilities? Give two examples. What is a bond? 5. Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible and callable. See long description for other questions.

1. Is a current liability a debt that can be expected to be paid in one year. Is this correct? Explain. 2. Identify three taxes commonly withheld by the employer from an employee's gross pay. 3. Identify three taxes commonly paid by employers on employees' salaries and wages. (b) Where in the financial statements does the

### Various Accounting Problems: Bonds, Liabilites, and Dividends

Please see the attached file. 1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain. 2. (a) What are long-term Liabilities? Give two examples. (b) What is a bond? 3. Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible an

### Telecommuting to JetBlue in an Emergency Situation

Identify JetBlue's core competency prior to February 14th and discuss whether or not JetBlue exemplified this core competency during the February 14th incident and afterwards. Article: http://www.cioinsight.com/case-studies/what-really-happened-at-jetblue/ What role did JetBlue's business strategy play in the February 14th

Six-month call options with strike prices of \$35 and \$40 cost \$6 and \$4, respectively. What is the maximum gain when a bull spread is created from the calls? Six-month call options with strike prices of \$35 and \$40 cost \$6 and \$4, respectively. What is the maximum loss when a bull spread is created from the calls? Six-

### Swaps and derivatives: Coffman & Tony Inc. can borrow at 13 percent in the long-term capital market (fixed rate) or can borrow at London Interbank offer rate (LIBOR) plus 75 basis points in the Eurodollar market. Jim & Pfeiffenberger Inc. can borrow at 12 percent in the capital market long term (fixed) or can borrow at LIBOR plus 50 basis points. Show a plain vanilla swap arrangement. There are four other problems. See the attachement for others.

Please see the attached files. 1. Coffman & Tony Inc. can borrow at 13 percent in the long-term capital market (fixed rate) or can borrow at London Interbank offer rate (LIBOR) plus 75 basis points in the Eurodollar market. Jim & Pfeiffenberger Inc. can borrow at 12 percent in the capital market long term (fixed) or can borrow

### Stock Price After Options are Exercised

Yert Corporation issues 100 stock options to its CEO on January 1, 2005. The stock options have an exercise price of \$50 and the current stock price is \$50 at the grant date. There are 200 shares outstanding as of January 1, 2005. Two years later, the CEO exercises his options. A) At this time the stock price is \$65 and

### Options, Warrants , Futures and Bonds

Please see the attached file. Q1- Consider a European call option on stock (A) that that expires on December 21 and has a strike price of \$50. a. If stock A is trading at \$55 on December 21, what is the payoff to the owner of the option? b. If stock A is trading at \$55 on Dec. 21, what is the payoff to the seller of the op

### Explain how various types of derivatives, such as futures contracts, can be used as a risk management tool.

Explain how various types of derivatives, such as futures contracts, can be used as a risk management tool. Explain the factors that can affect the appreciation or depreciation of currency.

### Delta, theta , gamma of call option, delta neutrality

1. Given the following information is given to you: T= 100 days, r = 5%, S = \$45, and standard deviation = 0.26, calculate the delta of a \$45 Call. How do you interpret this delta? 2. Consider a European call with the following details: Stock price = \$17.50 Strike price = \$17.00 r = 0.08 Variance

### Options to cover future receivables

A call option exists on British pounds with an exercise price of \$1.60, a 90 day expiration date, and a premium of \$.03 per unit. A put option exists on British pounds with an exercise price of \$1.62, a 90 day expiration date, and a premium of \$.03 per unit. You plan to purchase options to cover your future receivables of 1,00

### The price of a stock is \$40: Diagram and explain effects of call options and put options

The price of a stock is \$40. The price of a one year European put option on the stock with a strike price of \$30 is quotes as \$7 and the price of a one year European call option on the stock with a strike price of \$50 is quoted as \$5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options.

### Define he following terms and explain (extensively) their role in the financial markets

Define he following terms and explain (extensively) their role in the financial markets: SIV, CDO, STRIP, FEDERAL FUND RATE, LIBOR.

### Practice problems around option strategies- straddle, butterfly spread, CONDOR, writing covered calls, writing puts, vertical bull spread Please see attached file for complete description

1. Suppose you buy 100 shares of ABC at \$79.25 and simultaneously write a March 80 Straddle at the prices given below. Make a spreadsheet and draw a profit/loss diagram and label all significant points for this strategy. March 80 call at \$1.625 March 80 put at \$3.50 2. XYZ Inc.'s JUN 300 calls (\$4 1/4 each), JUN 30

### Multiple choice questions on earnings per share, derivatives (call and put options)

Volga Publishing is considering a proposed increase in its debt ratio, which will also increase the company's interest expense. The plan would involve the company issuing new bonds and using the proceeds to buy back shares of its common stock. The company's CFO expects that the plan will not change the company's total assets or

### Premium for Financial Risk - Beta Corp.

Beta Corp has an unlevered beta of 1.0. Beta Corp is financed with 50% debt and has a levered beta of 1.6.If the risk free rate is 5.5% and the market risk premium is 6% how much is the additional premium that Beta Corp shareholders require to be compensated for financial risk? Explain how to evaluate the use of securities