Exam (elaborations)
FMGT 4510 SetP (1).
- Course
- Biochemistry Module 3
- Institution
- Biochemistry Module 3
Exam of 4 pages for the course Biochemistry Module 3 at Biochemistry Module 3 (FMGT 4510 SetP (1).)
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FMGT 4510 SetPWhy are options important? 4 reasons - ANS-1. Use financial options to manage risk (interest
rate, exchange rate, stock risk)
2.Many projects contain "embedded options", which allow managers to change their plans as
market conditions change. Flexibility adds value to the project
3.Companies may offer stock options apart of their compensation (comp expense the options
when granted)
4. Option principles apply to convertible securities such as convertible debt and warrants.
Companies must value the option part of these securities fro accounting purpose
Why do companies use financial options? - ANS-To manage risk (Interest rate, exchange rate
and stock risk)
What do embedded options allow managers to change? - ANS-Allows them to change their
plans as market conditions change. Flexibility adds to project value
Options principles apply to ________ securities. 2 examples of ________ securities are
________ and _________ - ANS-Convertible, convertible, convertible debt and warrants
What is an option? - ANS-contract that give the holder the right to by or sell an asset at a
predetermined price with a set time period
What are each option based on for standardized exchange traded options? - ANS-Based on the
right to buy or sell 100 underlying shares
what is a call option? (for buyer) - ANS-gives the buyer of the option the right but not obligation
to buy assets
What is a call option? (for seller) - ANS-is the writer and has the obligation to sell asset
What is a put option? (for buyer) - ANS-Buyer of the option as the right but not the obligation to
sell the asset
What is a put option? (for seller) - ANS-sellers, the writer, has the obligation to buy asset
What is a strike price or exercise price? - ANS-price stated in the option contact to be bought or
sold
When are you in the money for options? - ANS-when it is worth exercising
When are you out of the money for options? - ANS-When option is not worth exercising
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