FIN 340 Final UPDATED Exam Questions
and CORRECT Answers
financial option - CORRECT ANSWER - contract that gives its owner the right (but no
obligation) to purchase or sell an asset at a fixed price at some future date
call option - CORRECT ANSWER - financial option that gives owner the right to buy an
asset
put option - CORRECT ANSWER - financial option that gives owner right to sell an asset
option writer - CORRECT ANSWER - seller of an option contract
derivatives - CORRECT ANSWER - securities whose cash flows depend solely on prices
of other marketed assets
warrant - CORRECT ANSWER - call option written by a company itself on new stock
exercising an option - CORRECT ANSWER - when a holder of an option enforces the
agreement and buys or sells a share of stock at the agreed-upon price
strike (exercise) price - CORRECT ANSWER - the price at which an option holder buys
or sells a share of stock when the option is exercised
American options - CORRECT ANSWER - most common kind of option, allow holders to
exercise the option on any date up to and including the expiration date
expiration date - CORRECT ANSWER - last date on which an option holder has the right
to exercise the option
, European options - CORRECT ANSWER - options that allow holder to exercise option
only on expiration date
open interest - CORRECT ANSWER - total number of contracts of an option that have
been written and not yet closed
at-the-money - CORRECT ANSWER - describes option whose exercise prices equal
current stock prices
in-the-money - CORRECT ANSWER - option whose value if immediately exercised is
positive (for call options strike price < stock price, for put options strike price > stock price)
out-of-the-money - CORRECT ANSWER - describes an option that if exercised
immediately results in a loss of money
deep in-the-money - CORRECT ANSWER - describes options that are in the money and
the strike price and stock price are very far apart
deep out-of-the-money - CORRECT ANSWER - describes options that are out of the
money and for which the stock price and strike price are very far apart
hedging - CORRECT ANSWER - reduce risk by holding contracts or securities whose
payoffs are negatively correlated with some risk exposure
speculate - CORRECT ANSWER - when investors use securities to place a bet on the
direction in which they believe the market is likely to move
call value at expiration - CORRECT ANSWER - stock price - strike price (if stock price >
strike price); otherwise 0
and CORRECT Answers
financial option - CORRECT ANSWER - contract that gives its owner the right (but no
obligation) to purchase or sell an asset at a fixed price at some future date
call option - CORRECT ANSWER - financial option that gives owner the right to buy an
asset
put option - CORRECT ANSWER - financial option that gives owner right to sell an asset
option writer - CORRECT ANSWER - seller of an option contract
derivatives - CORRECT ANSWER - securities whose cash flows depend solely on prices
of other marketed assets
warrant - CORRECT ANSWER - call option written by a company itself on new stock
exercising an option - CORRECT ANSWER - when a holder of an option enforces the
agreement and buys or sells a share of stock at the agreed-upon price
strike (exercise) price - CORRECT ANSWER - the price at which an option holder buys
or sells a share of stock when the option is exercised
American options - CORRECT ANSWER - most common kind of option, allow holders to
exercise the option on any date up to and including the expiration date
expiration date - CORRECT ANSWER - last date on which an option holder has the right
to exercise the option
, European options - CORRECT ANSWER - options that allow holder to exercise option
only on expiration date
open interest - CORRECT ANSWER - total number of contracts of an option that have
been written and not yet closed
at-the-money - CORRECT ANSWER - describes option whose exercise prices equal
current stock prices
in-the-money - CORRECT ANSWER - option whose value if immediately exercised is
positive (for call options strike price < stock price, for put options strike price > stock price)
out-of-the-money - CORRECT ANSWER - describes an option that if exercised
immediately results in a loss of money
deep in-the-money - CORRECT ANSWER - describes options that are in the money and
the strike price and stock price are very far apart
deep out-of-the-money - CORRECT ANSWER - describes options that are out of the
money and for which the stock price and strike price are very far apart
hedging - CORRECT ANSWER - reduce risk by holding contracts or securities whose
payoffs are negatively correlated with some risk exposure
speculate - CORRECT ANSWER - when investors use securities to place a bet on the
direction in which they believe the market is likely to move
call value at expiration - CORRECT ANSWER - stock price - strike price (if stock price >
strike price); otherwise 0
