1. Yallow Company's stock is trading at $30 a share. Call options on the company's stock are also available, one with a strike price of $25 and one with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?
If Yallow's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.
The options with the $25 strike price will sell for less than the options with the $35 strike price.
The options with the $25 strike price have an exercise value greater than $5.
The options with the $35 strike price have an exercise value greater than $0.
None of the above.
2. Which of the following statements is MOST correct?
A. For an investment project with a single IRR and with an investment cash outflow at t=0 (cash flow at t=0 is negative), if the investment project’s IRR exceeds the cost of capital then the project’s net present value (NPV) will be positive.
B. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
C. Projects A and B are independent if you can accept A or you can accept B or you can reject both of them, but you cannot accept both of them.
D. Both (A) and (C) are correct.