Suppose you bought a call option on with a strike price of. You plan to the option until expiration. If the market price of oil on the expiration out to be See 32, years will a. Exercise you right to buy oil at $85.32 b. Exercise your right to buy oil at $85.33 c. Exercise your right to sell oil at $85.55 d. Let the option expire e. None of the above. Which of the following statements is true regarding derivatives contracts? a. The holder of an American style put option has the right, but not the obligation, to buy the underlying asset at the strike price on or before the expiration state. b. The holder of an American style call option has the right, but not the obligation, to sell the underlying asset at the strike price on of before the expiration date. c. The buyer in a futures contract has the rights, but not the obligation, to sell the underlying asset at the strike price on or before the expiration date. d. The buyer in a futures contract has the right, but not the obligation, to buy the underlying asset at the strike price on or before the expiration date. e. None of the above. Which of the following statements is false? a. The firm can probability hedge more effectively than individual shareholder because the firm's mangers are likely to have better information about the firm's risk exposures. b. The firm can probability hedge more efficiency than individual shareholders because the firm faces proportionately lower transaction costs than individual shareholders. c. The firm faces proportionately higher transaction costs than individual shareholders when entering into derivatives contracts. d. The firm is likely to have a comparative advantage in hedging over individual shareholders. e. None of the above. Which of the following statements is true regarding corporate risk management? a. Hedging reduces the probability of bankruptcy and increases the cost of debt. b. By increasing the firm's borrowing capacity, hedging can reduce the probability that the firm lacks the financing needed to take on positive NPV projects. c. Hedging enhances the effectiveness of incentive based compensation by increasing the amount of risks that are out of mangers control d. Hedging will not reduce a firm's expected tax expense if the firm's expected net income is positive. e. None of the above. Joe Palooka entered into a forward contract by agreeing to sell 100 ounces of silver at a price of $59.50 per ounce on October 1, 2012. Suppose that the market price of silver is $54.00 per ounce on October, 1, 2012. What is Palooka's total gain or loss on the forward contract? a. Total Gain = $5, 950 b. Total Gain = $550 c. Total Loss = -$550 d. Total Loss = -$5, 950 e. None of the above Suppose you bought a call option on with a strike price of. You plan to the option until expiration. If the market price of oil on the expiration out to be See 32, years will a. Exercise you right to buy oil at $85.32 b. Exercise your right to buy oil at $85.33 c. Exercise your right to sell oil at $85.55 d. Let the option expire e. None of the above. Which of the following statements is true regarding derivatives contracts? a. The holder of an American style put option has the right, but not the obligation, to buy the underlying asset at the strike price on or before the expiration state. b. The holder of an American style call option has the right, but not the obligation, to sell the underlying asset at the strike price on of before the expiration date. c. The buyer in a futures contract has the rights, but not the obligation, to sell the underlying asset at the strike price on or before the expiration date. d. The buyer in a futures contract has the right, but not the obligation, to buy the underlying asset at the strike price on or before the expiration date. e. None of the above. Which of the following statements is false? a. The firm can probability hedge more effectively than individual shareholder because the firm's mangers are likely to have better information about the firm's risk exposures. b. The firm can probability hedge more efficiency than individual shareholders because the firm faces proportionately lower transaction costs than individual shareholders. c. The firm faces proportionately higher transaction costs than individual shareholders when entering into derivatives contracts. d. The firm is likely to have a comparative advantage in hedging over individual shareholders. e. None of the above. Which of the following statements is true regarding corporate risk management? a. Hedging reduces the probability of bankruptcy and increases the cost of debt. b. By increasing the firm's borrowing capacity, hedging can reduce the probability that the firm lacks the financing needed to take on positive NPV projects. c. Hedging enhances the effectiveness of incentive based compensation by increasing the amount of risks that are out of mangers control d. Hedging will not reduce a firm's expected tax expense if the firm's expected net income is positive. e. None of the above. Joe Palooka entered into a forward contract by agreeing to sell 100 ounces of silver at a price of $59.50 per ounce on October 1, 2012. Suppose that the market price of silver is $54.00 per ounce on October, 1, 2012. What is Palooka's total gain or loss on the forward contract? a. Total Gain = $5, 950 b. Total Gain = $550 c. Total Loss = -$550 d. Total Loss = -$5, 950 e. None of the above
