Which of the following is NOTtrue in a risk-neutral world?
A. The expected return on a call option is independent of its strike price
B. Investors expect higher returns to compensate for higher risk
C. The expected return on a stock is the risk-free rate
D. The discount rate used for the expected payoff on an option is the risk-free rate
B
In a risk-neutral world investors require an expected return equal to the risk-free rate and the discount rate that should be used for all expected payoffs is the risk-free rate.
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Except for the effects of small transaction costs, the forward premium or discount should be equal
and opposite in size to the difference in the national interest rates for securities of the same maturity. What is the name of this theory? A) interest rate parity theory B) the Bobby Fisher effect C) the law of one price D) the purchasing power parity theory
Ron's building, which was used in his business, was destroyed in a fire. Ron's adjusted basis in the building was $210,000, and its FMV was $330,000. Ron filed an insurance claim and was reimbursed $300,000. In that same year, Ron invested $240,000 of the insurance proceeds in another business building. Ron will recognize gain of
A) $0. B) $30,000. C) $60,000. D) $90,000.
A company plans to distribute $134,000 in dividends. It has outstanding 200,000 shares of 7% $10 par preferred stock (non-cumulative and non-participating) and 60,000 shares of $2 par common stock. How much will be distributed per share on preferred and common stock? Preferred stock Common stock
A. $0.52 $0.52 B. $0.67 $0.00 C. $0.00 $2.23 D. $0.60 $2.00