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Exam 14: Security Structures and Determining Enterprise Values

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Question 21

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The right to sell a specified asset at a specified price up until a specified date is called:

A) a forward contract
B) an American-style put option
C) an American-style call option
D) a European-style call option
E) a European style put option

F) A) and D)
G) C) and E)

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Question 22

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If a call option can be bought for $12 and the stock's market value is $12, it's said to be "at the money".

A) True
B) False

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Question 23

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Entity valuation allows us to answer the question of how much debt a venture needs to issue to achieve a target capital structure D/V).

A call option is the obligation to purchase a specific asset at a pre-determined price.

Which of the following is not an input to the Black and Scholes model?

An option is a right to buy or sell additional shares of stock.

The enterprise value includes the value of the debt, equity, and warrant pieces of a venture.

For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement.

An option granting the right to sell a stock at $10 when that stock currently has a market price $8 is "in the money."

Which of the following is an example of a put option which is at the money?

Convertible debt is debt with the option to exchange it into non-convertible or straight debt.

A warrant is a type of call option.

An option that can be exercised at any time until its expiration is called a:

The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:

Which of the following is not a type of option?

The Black and Scholes model requires the inflation rate as an input.

A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time.

Owning a put option on a stock is the same as selling a call option on that same stock.

Preferred stock is the equity claim senior to common stock providing preference on dividends but not liquidation proceeds.

An option that can be exercised only at a specific set of dates is called a: