International Finance And Treasury - Study Mode

[#721] Intrinsic value of option is subtracted from exercise price of an option to calculate
Correct Answer

(B) price of underlying asset

Explanation

Solution: Intrinsic value of option is subtracted from exercise price of an option to calculate price of underlying asset. The intrinsic value of an option represents the current value of the option, or in other words how much in the money it is.

[#722] Type of preferred stock whose payments are missed and must be paid before paying dividends of common stock is classified as
Correct Answer

(D) cumulative preferred stock

Explanation

Solution: Type of preferred stock whose payments are missed and must be paid before paying dividends of common stock is classified as cumulative preferred stock. Cumulative preferred stock is a type of preferred stock with a provision that stipulates that if any dividend payments have been missed in the past, the dividends owed must be paid out to cumulative preferred shareholders first.

[#723] Under writer spread is subtracted from gross proceeds to calculate
Correct Answer

(D) net proceeds

Explanation

Solution: Under writer spread is subtracted from gross proceeds to calculate net proceeds. Net proceeds are the amount the seller receives following the sale of an asset after all costs and expenses are deducted from the gross proceeds.

[#724] Form of market efficiency which states that prices of stock reflects public and private information of firm is classified as
Correct Answer

(B) strong form of market efficiency

Explanation

Solution: Form of market efficiency which states that prices of stock reflects public and private information of firm is classified as strong form of market efficiency. Market efficiency refers to the degree to which market prices reflect all available, relevant information. If markets are efficient, then all information is already incorporated into prices, and so there is no way to "beat" the market because there are no undervalued or overvalued securities available.

[#725] Difference between intrinsic value of option and price of option is classified as
Correct Answer

(C) time value of option

Explanation

Solution: Difference between intrinsic value of option and price of option is classified as time value of option. Time value refers to the portion of an option's premium that is attributable to the amount of time remaining until the expiration of the option contract.