Payoff from entering into a forward contract does the buyer have more to gain going long than the seller has to lose going short, profits if the price of the underlying at expiration exceeds the forward price and/or gains from owning the underlying versus owning the forward contract are equivalent? Explain why one or more of the options above are correct. and why, if any of the remaining options are incorrect.

Q: The maximum loss a seller of a stock put option can suffer is the _

A: Put Option: Put option provides the buyer the right to sell an asset at a predetermined price.…

Q: Why might individuals purchase futures contracts rather than the underlying asset? What is the…

A: The concept of future contact is associated with management of risk or uncertainty of business…

Q: A call option holder has an obligation to sell the asset. True or false?

A: A call option is an instrument which provides its holder an option to buy an underlying asset on a…

Q: The majority of the time, once a put option is purchased it is either sold for a gain or expires…

A: Options are derivative instruments in which the buyer of the option has the right or obligation to…

Q: Which of the following is True? a. Call option and Put option are identical derivatives contracts…

A: If the buyer of a short call option exercises the right to buy the underlying asset from the seller…

Q: Define the terms, or give short explanations.               -short sale/short selling…

A: A derivative is a financial contract whose value is derived from the underlying asset, which could…

Q: Which of these will increase the value of a call option? I. An increase in the market value of the…

A: Call Option: Options on stocks, bonds, commodities, and other assets or instruments are financial…

Q: The buyer of a Put Option has the right but not the obligation to sell the underlying stock. True…

A: A put option is a derivative contract giving the purchaser/owner the right, but not the obligation,…

Q: Choose which sentance is false.       A. When you own a call​ option, you have the right to buy the…

A: The option contracts are the derivative financial instruments that can be classified as the call…

Q: The buyer of a Put Option, is obligated to sell the underlying stock at maturity. True O False

A: Option gives the right to buy or sell an asset at exercise price at maturity. Two parties will be…

Q: Explain why speculating in derivatives, futures contracts and options is not appropriate for the…

A: Speculation regulates the international financial system. Future action in stock market is dependent…

Q: Which of the following best describes the terms 'long position' and 'short position' in trading?…

A: Trading in the financial markets is often based on speculating future price movements of assets such…

Q: Define a call option’s exercise value. Why is the market price of acall option always above its…

A: Answer: A call option is basically a deal that gives the option buyer the right to purchase…

Q: 2) Which of the following statements is FALSE? A) The option buyer, also called the option holder,…

A: Option is a derivative contract which allows the buyer of the option a right to buy or sell the…

Q: If spot price falls below the exercise price, seller of a futures contract makes a ______ while…

A: Futures . Futures are derivative that are entered to mitigate risk with regard to price movements.…

Q: The major difference between futures and options arises from the different obligations of buyers…

A: In futures contract, both the buyer and seller of the contract are obligated to buy and sell the…

Q: Which type of financial derivative is used to protect against adverse price movements in an asset?…

A: Financial derivatives are instruments whose value derives from the underlying assets or securities,…

Q: nvestors choose deri tives

A: derivatives are financial instruments whose value is derived from an underlying asset such as bonds…

Q: Futures contracts offer more flexible terms than a forward contract. True False

A: Futures and Forward contracts are contracts which allows to buy or sell an underlying asset at a…

Q: What does the option contract payoff diagram look like for NeedOil. Co. if it chooses to buy a call…

A: Options are the derivative contracts, there is not limit in the upside value of an option, however…

Q: Discuss how equity can be viewed as an option. Who has theoption, and what decision can they make?

A: If an enterprise cannot satisfy its contractual obligation of debt, it is in default for every…

Q: The majority of the time, once a call option is purchased it is either sold for a gain or expires…

A: Call option holder has a right to buy a particular stock at expiry date at a strike price or lapse…

Q: One can use Black-Scholes model to price any financial derivatives. true or false

A: The Black-Scholes model was specifically designed to value European-style options on non-dividend…

Q: If the underling is a liability rather than an asset, then the strike price of the option should be…

A: The option is a financial security since a buyer can purchase the right rather than the obligation…

Q: Which of the following describes a short put option? The obligation to sell an asset for a certain…

A: The put option give the right to the holder to sell the Asset by certain by certain date certain…

Q: The pay off from an option depends on the market price of the underlying asset a) a put holder…

A: The put option is a financial derivative instrument which derives its value from the underlying. A…

Q: (b) What is the time value of an option? Why does an option's time value decay as the option…

A: Time value represents the portion of an option premium related to the time remaining until the…

Q: As a call option is an option to buy and a put option an option to sell, the opposite position to…

A: Options give the buyer the right to purchase the underlying asset but not the obligation to exercise…