BUSI 408 note april 18 - BUSI408...

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BUSI 408  15:18 Derivatives : Financial instrument that derives its values from some  underlying. (underlying-coin, soybean, stock etc.) Call option : the right to buy the stock at a fixed exercise price over a certain  period of time Put option : the right to sell the stock at a fixed exercise price over a certain  period of time Owner of a company’s stocks never has negative payoff—limited liability Call option: X(exercise price=strike price) = $20 Current price= $5—not using the option Current price= $30—using the option call option exercise price       0       10      20     30     40     50 Pay off of call holder             0        0        0       10    20     30
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BUSI 408 note april 18 - BUSI408...

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