Quiz 2 from Bernie

Question 1

If a put’s strike price exceeds the spot rate, the put is at-the-money
-True/False?

Answer 1

False

Question 2

The value of a European-style call option is always at least equal to that of a comparable American call option.
-True/False?

Answer 2

False

Question 3

The seller of an European-style put option has the right but not the obligation to sell the underlying asset at maturity T.
-True/False?

Answer 3

False

Question 4

Hedging reduces agency costs by reducing the variability of the firm’s cash
flows. Hedging means that the manager bears less personal income risk,
making the manager more likely to accept risky project with positive net
present value.
True/False?

Answer 4

True

Question 5

Firms may benefit from economies of scale when hedging in forward
markets, while individual shareholders may not.
True/False?

Answer 5

True

Question 6

Short selling is usually possible for individual shareholders
True/False?

Answer 6

False