An option that gives the option buyer the right to buy the commodity or financial instrument specified in the contact at the exercise price is called:* A. an American option B. a European option C. a call option D. a put option

An option that gives the option buyer the right to buy the commodity or financial instrument specified in the contact at the exercise price is called:* A. an American option B. a European option C. a call option D. a put option

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter8: Financial Options And Applications In Corporate Finance

Section: Chapter Questions

Problem 2MC

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Question

An option that gives the option buyer the right to buy the commodity or financial instrument specified in the contact at the exercise price is called:*

A. an American option

B. a European option

C. a call option

D. a put option

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An option that gives the option buyer the right to sell the commodity or financial instrument specified in the contact at the exercise price is called: a. an American option. b. a call option. c. a put option. d. a European option.
Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
Which one of the following statements correctly describes your situation as the owner of an American call option? Multiple Choice You are obligated to buy at a set price at any time up to and including the expiration date. You have the right to sell at a set price at any time up to and including the expiration date. You have the right to buy at a set price only on the expiration date. You are obligated to sell at a set price if the option is exercised. You have the right to buy at a set price at any time up to and including the expiration date.
Which of the following statements about European option contracts is true? Question 2Answer a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present. c. A long call position and a short put position both involve buying the underlying and so are equivalent d. One can synthesise a long forward position in the underlying by being long a call and short a put
a)analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate, volatility, and dividends. b) identify, analyze, and discuss the following characteristics of a European put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. c) analyze and discuss the following factors on a European put option: time to expiration, exercise price, interest rate, volatility, and dividends. d) discuss the relationship between American and European option prices. e) derive the put-call parity and discuss its implications. f) discuss the characteristics of a currency option.
i)identify, analyze and discuss the following characteristics of an American put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. ii) analyze and discuss the following factors on an American put option: time to expiration, exercise price, interest rate, volatility, and dividends. iii) identify, analyze, and discuss the following characteristics of a European call option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. iv) analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate,
Select all that are true with respect to options discussed in this module: Group of answer choices Option “moneyness” is sometimes called the “intrinsic value” of the option. A European Option can be exercised any time up to and including the date of maturity, but American Option can be exercised only at the date of maturity. The option “writer” is essentially the original seller of the option. While the option owner has the right, but not the obligation, to exercise an option, the option writer is obligated to follow through on the other side of the transaction if the option owner chooses to exercise. The option premium (option “value”) is made up of the intrinsic value and “speculative” value or time value.
State and prove the Put-Call Parity Theorem that gives the relation between a European Call and a Put option price where the options are written on the same stock, same time to maturity and have the same exercise price.
a)describe the major differences between forward contracts and option contracts. b)discuss an arbitrage opportunity when an option is mispriced. c) identify, analyze, and discuss the following characteristics of an American call option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. d) analyze and discuss the following factors on an American call option: time to expiration, exercise price, interest rate, volatility, and dividends.
An options contract that allows you to exercise the option anytime during a given time period is known as ... a. An American option b. A Caribbean option c. An English option d. A European option
Consider the following portfolio: a newly entered-into long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the forward contract and a strike price that is equal to the forward price of the asset at the time the portfolio is set up. Show that it has the same value as a European call option with the same strike price and maturity as the European put option. Deduce that a European put option has the same value as a European call option with the same strike price and maturity when the strike price for both options is the forward price.
h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. i) discuss the boundary conditions on the prices of American and European call option contracts on futures. j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. k) describe how spot prices are determined using the cost-of-carry model.