Chapter 14 Practice Problems

Chapter 14 Practice Problems - Chapter 14 Practice Problem...

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Chapter 14 Practice Problem 1. A ______ grants the owner the right to purchase a specified financial instrument for a specified price within a specified period of time. A) call option B) put option C) sale of a futures contract D) purchase of a futures contract 2. A call option is “in the money” when the A) market price of the underlying security exceeds the exercise price. B) market price of the underlying security equals the exercise price. C) market price of the underlying security is less than the exercise price. D) premium on the option is less than the exercise price. 3. Sellers (writers) of call options can offset their position at any point in time by A) selling a put option on the same stock. B) buying identical call options. C) selling additional call options on the same stock. D) A and B E) all of the above 4. A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. The speculator will exercise the option on the expiration date (if it is feasible to do so). What is the speculator’s profit per unit? A) $1
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This document was uploaded on 08/05/2011.

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Chapter 14 Practice Problems - Chapter 14 Practice Problem...

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