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MATCHING:debt-to-value ratio DO AS MANY ASleveraged recapitalizationYOU WISHAmerican optionsunlevered equityLevered equityat-the-moneycall optionhedgingEuropean optionscapital structurefinancial optionconservation of value principleintrinsic valueopen interestoption premiumportfolio insuranceput-call parityput optionstrike priceThe relative proportions of debt, equity, and other securitiesthat a firm has outstanding. When corporations raise funds fromoutside investors, they must choose which type of security toissue. The most common choices are financing through equity aloneand financing through a combination of debt and equity.With perfect capital markets, financial transactions neitheradd nor destroy value, but instead represent a repackaging of risk(and therefore return). It implies that any financial transactionthat appears to be a good deal in terms of adding value either istoo good to be true or is exploiting some type of marketimperfectionA measure of the firm’s leverage. This is the fraction of thefirm’s total value that does not correspond to equity. If onlyequity is used the WACC is equal to the unlevered equity cost ofcapitalWhen a firm repurchases a significant percentage of itsoutstanding shares by borrowing finds.Equity in a firm with no debt.Equity in a firm that also has debt outstanding.The most common kind, allow their holders to exercise theoption on any date up to and including a final expiration dateWhen the exercise price of an option is equal to the currentprice of the stockGives the owner the right to buy the assetAllow their holders to exercise the option only on theexpiration dateGives its owner the right (but not the obligation) to purchaseor sell an asset at a fixed price at some future dateUsing an option to reduce riskThe value an option would have if it expired immediatelyThe total number of outstanding contracts of that optionThis upfront payment compensates the seller for the risk ofloss in the event that the option holder chooses to exercise theoption.Using put options on the portfolio of stocks as a whole ratherthan just a single stock.This relationship between the value of the stock, the bond, andcall and put optionsGives the owner the right to sell the asset.The price at which the holder buys or sells the share of stockwhen the option is exercised