Explain the meanings of the following financial terms: a. Option b. Expiration date c. Strike price d. Call e. Put

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 20, Problem 1P

Explain the meanings of the following financial terms:

a. Option
b. Expiration date
c. Strike price
d. Call
e. Put

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

How is the value of a financial option affected by(a) the current price of the underlying asset, (b) theexercise (or strike) price, (c) the risk-free rate,(d) the time until expiration (or maturity), and(e) the variance of returns on the asset?

Explain the following terms, Option price and Strike price.

Describe the five variables (Assets price, Strick price or Exercise Price, Risk- Free- Rate, Time to Expiration, Volatility) that Black-Scholes-Merton Formula uses to calculate the price of call and put options. Explain how the change in these variables (Assets price, Strick price or Exercise Price, Risk- Free- Rate, Time to Expiration, Volatility) affects the price of the option.

Answer 2

Textbook Question

Chapter 20, Problem 1P

Explain the meanings of the following financial terms:

a. Option
b. Expiration date
c. Strike price
d. Call
e. Put

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 20, Problem 1P

Explain the meanings of the following financial terms:

a. Option
b. Expiration date
c. Strike price
d. Call
e. Put

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 20, Problem 1P

Explain the meanings of the following financial terms:

a. Option
b. Expiration date
c. Strike price
d. Call
e. Put

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Answer 8

a)

Expert Solution

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

To discuss: The meaning of option.

Introduction:

A type of financial security whose value is derived from the value of a particular underlying asset is termed as derivative. This form of financial security consists of two or more parties who enter into an agreement to purchase or sell an asset at a specific price on a particular period. They are four types of derivative securities that are as follows:

Forward contract
Future contract
Swap
Option

Answer 13

Explanation of Solution

Option is a contract that involves the act of purchase a financial asset from one party and selling it to another party on an agreed price for a future date. There are two types of options. They are as follows:

An option that buys an asset is called as call option
An option that sells an asset is called as put option.

Answer 14

b)

Expert Solution

Summary Introduction

To discuss: The meaning of expiration date.

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

Summary Introduction

To discuss: The meaning of expiration date.

Answer 19

Explanation of Solution

The last day or date, wherein the holder of a financial security has a right to exercise a particular option is termed as expiration date. In case of Country AM’s option, the right of the holder is exercised until the expiration date, whereas in Country E’s option, the option is exercised only on the expiration date.

Answer 20

c)

Expert Solution

Summary Introduction

To discuss: The meaning of strike price.

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

Summary Introduction

To discuss: The meaning of strike price.

Answer 25

Explanation of Solution

A particular price at which the option holder has the right to sell or purchase a specified asset is termed as strike price. It is also termed as exercise price.

Answer 26

d)

Expert Solution

Summary Introduction

To discuss: The meaning of call option.

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

Summary Introduction

To discuss: The meaning of call option.

Answer 31

Explanation of Solution

The right of an individual to purchase an asset at the price that is fixed and at a specific period is the call option.

Answer 32

e)

Expert Solution

Summary Introduction

To discuss: The meaning of put option.

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

Summary Introduction

To discuss: The meaning of put option.

Answer 37

Explanation of Solution

Put option is a contract that is made by two investors to sell or buy an underlying asset. This option is constructed to mitigate the downside risk of an underlying asset.

Answer 38

Ch. 20.1 - What is the difference between an American option...Ch. 20.1 - Does the holder of an option have to exercise it?Ch. 20.1 - Prob. 3CC Ch. 20.2 - What is a straddle?Ch. 20.2 - Explain how you can use put options to create...Ch. 20.3 - Explain put-call parity.Ch. 20.3 - If a put option trades at a higher price from the...Ch. 20.4 - What is the intrinsic value of an option?Ch. 20.4 - Can a European option with a later exercise date...Ch. 20.4 - How does the volatility of a stock affect the...

Explain the meanings of the following financial terms: a. Option b. Expiration date c. Strike price d. Call e. Put

Concept explainers

Videos

Explanation of Solution

Explanation of Solution

Explanation of Solution

Explanation of Solution

Explanation of Solution

Want to see more full solutions like this?

Chapter 20 Solutions

Additional Business Textbook Solutions