In Terms of Relating Options to Firm Value, If the Stockholders

question 25

Multiple Choice

In terms of relating options to firm value, if the stockholders have a call option on the firm, what do the bondholders have?

• A) In addition to owning the firm, they have written a call option against the firm whose exercise price equals the promised payment.
• B) In addition to owning the firm, they have bought a call option against the firm whose exercise price equals the promised payment.
• C) In addition to owning the firm, they have written a put option against the firm whose exercise price equals the promised payment.
• D) In addition to owning the firm, they have bought a put option against the firm whose exercise price equals the promised payment.

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Definitions:

Nominal Exchange Rate

The rate at which one country's currency can be traded for another country's currency.

Yuan

The currency unit of the People's Republic of China, often used to denote the basic monetary unit.

Real Exchange Rate

The real exchange rate is an economic measure that compares the relative price of domestic goods to foreign goods, adjusted for currency exchange rates.

Net Exports

The net difference between a nation's total exports and its total imports, indicating the trade balance.