Question

true/ false

1,

In the context of the binomial option pricing model for American put options, a decrease in the volatility will reduce the early exercise premium.

Group of answer choices

2, In the context of relative valuation, the PB ratio should always be greater than the EV/Capital ratio

3,A zero-coupon interest rate that is equal to 0% implies that there is an arbitrage opportunity.

4,A bond selling at a price greater than the bond's face value means that its coupon rate is larger than the bond's promised yield-to-maturity.

5,In the real world, using the P/EBITDA ratio is better than using the PE ratio.

Answer 1

1) True, In the context of the binomial option pricing model for American put options, a decrease in the volatility will reduce the early exercise premium as volatility and EEP are positively related.

2) False, in the context of relative valuation, the PB ratio may not always be greater than the EV/Capital ratio

3) False, A zero-coupon interest rate that is equal to 0% implies that there is an arbitrage opportunity. There is no arbitarge opportunity in case of zero coupon interest rate .

4) True , A bond selling at a price greater than the bond's face value means that its coupon rate is larger than the bond's promised yield-to-maturity. because higher market price means lower yield hence when Mp> fv, coupon rate > YTM

5) True, in real world using the P/EBITDA ratio is better than using the PE ratiio as it values the worth of the entire company.