Corporate FInace Assignment/ Professional Essay Writers
May 16th, 2020
1) The price of OPQ stock is currently equal to $50. In a year’s time, it will either have increased to $60 or decreased to $40. Consider a call option written on OPQ stock with a strike price equal to $50 and maturity of one year. In order to replicate the total payoff of a portfolio of 10 call options how many stocks do you need to hold in your replication portfolio?
a) 4 000.
b) 0.500.
C) 5.000.
d) 0.366.
2) Which statement about a European put option is FALSE;
a) The option value increases as volatility of the underlying stock returns increases.
b) The option value increases as the maturity of the contract increases.
c) The option value increases as the underlying stock price decreases.
d. The option value decreases as the strike (exercise) price increases.
3) Which of the following statements is false?
a) When a firm pays a dividend, shareholders are taxed according to the dividend tax rate. If the firm repurchases share instead, and shareholders sell shares to create a homemade dividend, the homemade dividend will be taxed according to the capital gains tax rate.
b) When the tax rate on dividends exceeds the tax rate on capital gains. shareholders will pay lower taxes if a firm uses share repurchases for all payouts rather than dividends.
c) Firms that use dividends will have to pay a lower after-tax return to offer their investors the same pre-tax return as firms that use share repurchases.
d) The optimal dividend policy when the dividend tax rate exceeds the capital gain tax rate is to pay no dividends at all. Get Finance Help Today
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