Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Question 3
Which type of financial derivative gives the holder the right to buy an underlying asset at a specified price before a
predetermined expiration date?
A) Swap
B) Forward contract
C) Call option
D) Put option
Expert Solution
Step 1: Define=option
Options: An option is a contract that gives the holder the right but not the obligation to buy or sell an underlying asset at a specified price on or before a specified date. The buyer of an option pays a premium to the seller, who assumes the obligation to deliver the asset if the buyer chooses to exercise the option. Options can be used to hedge against price volatility or to speculate on the future price movements of the underlying asset. There are two types of options: call and put options.
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