Financial Management - Study Mode

[#221] In financial planning, formula MAX [current price of stock-strike price, 0] is used to calculate
Correct Answer

(B) exercise value

Explanation

Solution: In financial planning, formula MAX [current price of stock-strike price, 0] is used to calculate exercise value. The exercise value is the value that an option buyer will get from the option on exercising it.

[#222] According to put call parity relationship, call option plus present value of exercise price minus stock is to calculate
Correct Answer

(C) put option

Explanation

Solution: According to put call parity relationship, call option plus present value of exercise price minus stock is to calculate put option. A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.

[#223] When two portfolios have identical values and payoffs then it is classified as
Correct Answer

(D) put call parity relationship

Explanation

Solution: When two portfolios have identical values and payoffs then it is classified as put call parity relationship. Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date.

[#224] Greater value of option, larger span of time value is usually results in
Correct Answer

(B) longer call option

Explanation

Solution: Greater value of option, larger span of time value is usually results in longer call option. A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.

[#225] Price at which European and American options can be exercised is classified as
Correct Answer

(D) Both A and B

Explanation

Solution: Price at which European and American options can be exercised is classified as exercise price and strike price.