Financial Management - Study Mode

[#551] Second step in binomial approach of option pricing is to define range of values
Correct Answer

(A) at expiration

Explanation

Solution: Second step in binomial approach of option pricing is to define range of values at expiration. An expiration date in derivatives is the last day that a derivative, such as options or futures, is valid. On or before this day, investors will have already decided what to do with their expiring position.

[#552] An increase in value of option leads to low present value of exercise cost only if it has
Correct Answer

(B) interest rates are high

Explanation

Solution: An increase in value of option leads to low present value of exercise cost only if it has interest rates are high. Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall.

[#553] Third step in binomial approach of option pricing is to
Correct Answer

(B) equalize range of payoffs

Explanation

Solution: Third step in binomial approach of option pricing is to equalize range of payoffs.

[#554] A type of contract in which contract holder has right to sell an asset at specific period for predetermining price is classified as
Correct Answer

(A) option

Explanation

Solution: A type of contract in which contract holder has right to sell an asset at specific period for predetermining price is classified as option. Options are financial instruments that are derivatives or based on underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell depending on the type of contract they hold the underlying asset.

[#555] Dividends paid to common shareholders and divided by common shares outstanding are equals to
Correct Answer

(B) dividends per share

Explanation

Solution: Dividends paid to common shareholders and divided by common shares outstanding are equals to dividends per share. Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time by the number of outstanding ordinary shares issued.