IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 601:

  A major use of warrants in financing is to

  A. Lower the cost of debt

  B. Avoid dilution of earnings per share.

  C. Maintain managerial control.

  D. Permit the buy-back of bonds before maturity

  Correct Answer: A

  Warrants are long-term options that give holders the ghetto buy common stock in the future at a specific price. If the market price goes up, the holders of warrants will exercise their rights to buy stock at the special price. If the market price does not exceed the exercise price, the warrants will lapse. Issuers of debt sometimes attach stock purchase warrants to debt instruments as an inducement to investors. The investor then has the specialty of fixed- return debt plus the possibility for large gains if stock prices increase significantly, W warrants are attached, debt can sell at an interest rate slightly lower than the market rate

• Question 602:

  The market price of Flesher Corporation's common stock is $100 per share, and each share gives its owner one subscription right. Five nights are required to purchase an additional share of common stock at the subscription price of $91 per share. If the common stock is currents selling "rights-on", the value of a right is closest to, in theory.

  A. $1.50

  B. $1.80

  C. $2.25

  D. $9.00

  Correct Answer: A

• Question 603:

  The market price of Flesher Corporation's common stock is $100 per share, and each share gives its owner one subscription right. Five rights are required to purchase an additional share of common stock at the subscription price of $91 per share. The value of one share of Fleshers common stock when it goes ex-rights, in theory, is closest to

  A. $9100

  B. $a.2O

  C. $9850 D. $100.00

  Correct Answer: C

  The stock will decline in value by the van (use of the night. The theoretical value of a night is $1.50. Thus, the value of the stock should decline to $98.50 ($100.00 - $1.50),

• Question 604:

  Which one of the following is not a determinant in valuing a can option?

  A. Exercise pence

  B. Expiration date.

  C. Forward contract price.

  D. Interest rate.

  Correct Answer: C

  The exercise price, the expiration date, and the interest rate are all determinants in veiling a call option.

• Question 605:

  Harrison's Spot scars is able k borrow at an annual rate of 7% for two years, using its automobile loans as collateral The loans are made from Nanto Acceptance Company, a whole owned subsidiary. It estimates that its overhaul return from car loans is 11%, once the return on the loans (6.9%) and economies realized from manifesting costs are factored into the analysis. If the average automobile loan is three years in length, what forward interest rate is implied by this homemade forward contract?

  A. 3.84%

  B. 7.82%

  C. 19.45%

  D. 23.21%

  Correct Answer: C

• Question 606:

  You are currently lording a call option on a stock with an exercise pence of $100. If the current stock pence is $90, your net proceeds by exerting this option will be

  A. $(10)

  B. $10

  C. $0

  D. $90

  Correct Answer: A

  If the market price is less than the exercise price, the option is considered to be "out of the money" because the call owner ordinarily would not exercise the option (it would resift in a loss) Pa'anga $100 for a $90 stock would result in negative proceeds of $10.

• Question 607:

  A distancing Tift of futures Ont1andt is that

  A. Performance is delayed,

  B. It is a hedge, not a speculation.

  C. Delivery is to be on a specific day

  D. The price is marked to market each day.

  Correct Answer: D

  A dish anguishing feature of futures contracts is that their prices are marked to market every day at the close of the day. Thus, the market price is posted at the close of business each day. A mark-to-market provision minimizes a futures contracts chance of default because profits and losses on the contracts must be received or paid each day through a clean in-house.

• Question 608:

  It Up is the value of a put option. V is the vatic of a call option, V8 is the value of the stock, and PVE is the present value of the exercise pence, what is the formula for the put- call panty theorem for European options?

  A. V8:PVE-VpVC

  B. Vg+Vp-VC=PVE

  C. VS+PVE=VPVC

  D. PVE=VS-Vp-VC

  Correct Answer: B

  For European options, given market equilibrium for all relevant paces (no arbitrage possibilities), equal exercise prices for the put and the can, and the same expiration date, the put-call panty theorem states that a fixed relationship apples to the market values of the put and call options on a secant. For example, a strategy of selling one call option, buying one share of the stock, and bang one put option should result in a ask-free return. The gain (loss) from the stock and the put should equal the gain (loss) on the call. If Vs is the value of the stock. Vp is the value of the put, `Ic is the value of the call, and PVE is the present value of the exercise price (the time interval is the time to expiration), the formula for put-call parity may be stated as :follows Vs + Vp -- V = PVE

• Question 609:

  A company wishes to price a call option written on a nod Mend. paying stock. The current stock pence is $50, the exercise price is $4$. the ask-.free interest rate is 5.0%, the option expires in 1 year, and the cumulative probabilities used to calculate the present values of the final stock price and the exercise price are .65 and 58. respectively, The company uses the 8lack-Scholes Option Pricing Model. It e( is 9515, the current value of the call option is

  A. $6.02

  B. $46

  C. $402

  D. $200

  Correct Answer: A

• Question 610:

  How math must the stock b wolf at .spirant in order for a II homer to break even f the eerie price is $60 and the call premium was $3?

  A. $57.00

  B. $6000

  C. $61.50

  D. $63.00

  Correct Answer: D

  Because the call premium is $3, the stock pence must be at least $63 ($60 exercise price + $31 cat premium).