Exam 24: Present Value of 1 at Compound Interest

Derivatives are used by corporations as a useful tool for managing certain aspects of the firm's risk.

Which of the following statements about put and call options is false?

Options provide the holder with the right to purchase or sell specified assets at a stated price on or before a set expiration date.

The Over- the- Counter (OTC) exchange is not an organization but an intangible market for trading securities which are not listed by the organized exchanges.

Call options are purchased with the expectation that the market price of the underlying security will rise while put options are purchased with the expectation that the market price of the underlying security will fall

A call option is an option to sell a specified number of shares of a stock on or before some future date at a stated price.

The option buyer who expects a stock price to decline will purchase

Call options are purchased with the expectation that the market price of the underlying security will fall while put options are purchased with the expectation that the market price of the underlying security will rise.

Nico Yong is considering the purchase of 100 Cisco Systems shares at $22 per share. Because the economy is picking up, Nico believes the demand for Oracle's router systems will increase substantially causing the price of Cisco's shares to increase to $30 per share. As an alternative, Nico is considering the purchase of a call option for 100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico $200. Ignore transaction costs and dividends. By how much must the share price rise for Nico to break even on the option transaction?

For puts and calls, the exercise price is called

The option buyer who expects a stock price to decline will purchase a put option.

Nico Yong is considering the purchase of 100 Cisco Systems shares at $22 per share. Because the economy is picking up, Nico believes the demand for Oracle's router systems will increase substantially causing the price of Cisco's shares to increase to $30 per share. As an alternative, Nico is considering the purchase of a call option for 100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico $200. Ignore transaction costs and dividends. What will Nico's profit be on the share transaction if he decides to buy the stock and its price does increase to $30 per share and he sells?

The strike price is the price at which the holder of a call option can buy a specified number of shares at any time prior to the option's expiration date.

For puts and calls, the exercise price is called

All of the following are true of calls and puts EXCEPT

A security that is neither debt nor equity but derives its value from an underlying asset is called a(n)

Nico Yong is considering the purchase of 100 Cisco Systems shares at $22 per share. Because the economy is picking up, Nico believes the demand for Oracle's router systems will increase substantially causing the price of Cisco's shares to increase to $30 per share. As an alternative, Nico is considering the purchase of a call option for 100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico $200. Ignore transaction costs and dividends. How much will Nico earn on the option transaction if he purchases the option and the underlying share price rises to $30?

An option is a security that is neither debt nor equity but derives its value from an underlying asset that is often another security.

All of the following are true of calls and puts EXCEPT

In the OTC market, the prices at which securities are traded result from both competitive bids and negotiation.