1) Call Options on XYZ Corporations common stock trade in market. Which of the given statements is most correct, holding other things constant.
a) Price of these call options is probable to increase if XYZ's stock price rises.
b) Higher strike price on XYZ's options, higher the option's
2) When considering stand-alone risk, return distribution of less risky investment is more peaked (“tighter”) than that of riskier investment. What shape would return distribution have for the investment with (a) entirely certain returns and (b) entirely uncertain returns?
3) Emporia Mills management is estimating 2 alternative heating systems. Costs and projected energy savings are given in given table. The firm uses 11.01% to discount such project cash flows.
Year System 100 System 200
0 $-1,623,125 $-2,005,487
1 210,656 666,600
2 618,572 611,398
3 781,003 580,643
4 697,375 379,577
4) Compute NPV of systems?
5) Which system should be chosen?