If the Time to Expiration of the Underlying Stock Decreases

question 40

Multiple Choice

If the time to expiration of the underlying stock decreases, then the:

• A) value of the put option will increase, but the value of the call option will decrease.
• B) value of the put option will decrease, but the value of the call option will increase.
• C) value of both the put and call option will increase.
• D) value of both the put and call option will decrease.
• E) value of both the put and call option will remain the same.

Recognize the importance of using an appropriate discount rate, specifically the weighted average cost of capital (WACC), in evaluating investment projects, including adjustments for project risk.

Calculate the weighted average cost of capital (WACC) using a firm's target capital structure and component costs of capital, considering the effect of taxes.

Estimate a firm's cost of equity based on CAPM, incorporating the risk-free rate, market return, and the firm's beta.

Determine the appropriate weights of debt and equity in the calculation of a firm's WACC.

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Definitions:

Leadership Style

The manner and approach of providing direction, implementing plans, and motivating people within organizational settings.

Conscientious Labourers

Workers who are diligent, careful, and meticulous in their tasks, showing a high level of responsibility.

Fiedler's Contingency Theory

is a leadership theory proposing that a leader’s effectiveness is contingent upon how well the leader's leadership style matches the current context or environment.

Situational Theory

A leadership theory suggesting that the best leadership style depends on the specific situation, including factors like task structure, leader's power, and relationships.