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chap22_quest - CHAPTER 22 OPTIONS AND CORPORATE FINANCE...

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CHAPTER 22 OPTIONS AND CORPORATE FINANCE Answers to Concept Questions 1. A call option confers the right, without the obligation, to buy an asset at a given price on or before a given date. A put option confers the right, without the obligation, to sell an asset at a given price on or before a given date. You would buy a call option if you expect the price of the asset to increase. You would buy a put option if you expect the price of the asset to decrease. A call option has unlimited potential profit, while a put option has limited potential profit; the underlying asset’s price cannot be less than zero. 2. a. The buyer of a call option pays money for the right to buy. ... b. The buyer of a put option pays money for the right to sell. ... c. The seller of a call option receives money for the obligation to sell. ... d. The seller of a put option receives money for the obligation to buy. ... 3. An American option can be exercised on any date up to and including the expiration date. A European option can only be exercised on the expiration date. Since an American option gives its owner the right to exercise on any date up to and including the expiration date, it
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Spring '09 term at UMBC.

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chap22_quest - CHAPTER 22 OPTIONS AND CORPORATE FINANCE...

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