15. Real and Financial Options. Fill in the blanks. (LO3, 4)

a. An oil company acquires mining rights to a silver deposit. It is not obliged to mine the sil- ver, however. The company has effectively acquired

a. option, where the exercise price is the cost of opening the mine and extracting the silver.

b. Some preferred shareholders have the right to redeem their shares at par value after a speci- fied date. (If they hand over their shares, the firm sends them a check equal to the shares' par value.) These shareholders have a option.

c. A firm buys a standard machine with a ready secondhand market. The secondhand market gives the firm a option.