QUESTION 48

1. What are the two purposes of options contracts? (1) Options contribute to the price discovery process for their underlying security. (2) Options do not satisfy any useful purpose for society, rather they are pure gambling and speculative devices. (3) Options increase the salience of the underlying security for the option holder and increase the person's attention on the underlying security. (4) When purchasing a house in the U.S., the buyer of the house is legally required to purchase a call option on the value of the house.

a. 1 and 2.

b. 1 and 3.

c. 2 and 3.

d. 2 and 4

QUESTION 52

1. Robin purchased a call option on an "index" of stocks. She can only exercise the option on one specific date, six months from now. Robin bought a:

a. Short European option.

b. Long American option.

c. Short forward contract.

d. Long European option.