Options Flashcards
1
Q
What type of options do we assume that we use
A
European
2
Q
What is the difference between payoff and profit
A
Payoff does not take into account the money we paid for the option
3
Q
What is the time value of an option
A
Time value is difference between the market value
and the intrinsic value of an option
4
Q
5 Capital structure examples of agency cost of debt
A
Refusing to Contribute Equity Capital ( underinvestment)
Risk Shifting (or ‘Asset Substitution’)
Cash In & Run (increase dividends)
Playing for Time (reluctant liquidation)
Bait & Switch (increase leverage)
5
Q
A
