MCQ Flashcards
(15 cards)
A future to lock in the price of natural gas to protect a profit is
A short hedge
The value of an asset is determined by
The discounted expected future pay-offs
The right to sell securities at a fixed price and any date before maturity is
An american put option
A short put option on a stock is characterised by
The obligation to buy the stock
Mixing uncorrelated assets results in
Diversification
To form a Straddle you should combine
Long calls and an equal number of long puts with the same strike price
Holding corporate equity can be seen as
A long European call option on firm assets
Holding a corporate bond can be seen as
Short put on the assets of the firm
Lower volatility of the stock leads to
Lower value of both call and put option on the stock
Shareholder and manager conflicts of interest cause
Both Pricipal-agent and agency cost problems
The mandate to a CFO is to
Maximise shareholder value
A short futures position on a product agrees today
To sell a product at a later date at a price set today
Lower beta coefficient means
Lower exposure to market risk
Company Investment project appraisal should be using
The cost of capital if the risk of the project is the same with that of the company
Proposition of Modigliani-Miller states that a firms total cost of capital
Is independent of its capital structure (without taxes)
