Financial Management - Study Mode

[#831] An interest rate which is used in calculation of cash flows of bonds is called
Correct Answer

(C) required rate of return

Explanation

Solution: An interest rate which is used in calculation of cash flows of bonds is called required rate of return. The required rate of return is the minimum return an investor expects to achieve by investing in a project. An investor typically sets the required rate of return by adding a risk premium to the interest percentage that could be gained by investing excess funds in a risk-free investment.

[#832] According to top rating agencies S&P triple-A and double-A rating bonds are classified as an
Correct Answer

(B) extremely safe

Explanation

Solution: According to top rating agencies S&P triple-A and double-A rating bonds are classified as an extremely safe.

[#833] Call options situation in which strike price is greater than current price of stock is classified as
Correct Answer

(D) out-of-the-money

Explanation

Solution: Call options situation in which strike price is greater than current price of stock is classified as in-the-portfolio. Call options are agreements that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.

[#834] First step in binomial approach of option pricing is to
Correct Answer

(A) define ending price of stock

Explanation

Solution: First step in binomial approach of option pricing is to define ending price of stock. valuation method developed in 1979. The binomial option pricing model uses an iterative procedure, allowing for the specification of nodes, or points in time, during the time span between the valuation date and the option's expiration date.

[#835] Present value of portfolio Rs 850 and current option price Rs 1620 then value of stock included in portfolio would be
Correct Answer

(C) Rs 770.00

Explanation

Solution: Stock included in portfolio = Current option price- Present value of portfolio = Rs. 1620 - Rs. 850 = Rs. 770.