Financial Management - Study Mode

[#1016] If a firm has k e > r the Walter's Model suggests for:
Correct Answer

(A) 0% Payout

[#1017] Use of safety stock by a firm would:
Correct Answer

(A) Increase Inventory Cost

[#1018] In Capital Budgeting, Sunk cost is excluded because it is:
Correct Answer

(B) not incremental

[#1019] Types of option markets do not include
Correct Answer

(C) expiry option

Explanation

Solution: Types of option markets do not include expiry option. The expiration date of an option contract is the last date on which the holder of the option may exercise it according to its terms. In the case of options with "automatic exercise" the net value of the option is credited to the long and debited to the short position holders.

[#1020] In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate
Correct Answer

(A) current value of portfolio

Explanation

Solution: In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate current value of portfolio. It is referred to as mark-to-market and involves multiplying the current share price of the stock by the number of shares owned and summing these values for a total portfolio value.