6. You need a barrel of oil next month. You could either wait and buy the oil in

Question

6. You need a barrel of oil next month. You could either wait and buy the oil in a month, you could enter into a futures contract to buy oil at the current futures price $82, or you can pay $3 for a call option that gives you the right to buy oil for $80. The current spot price is $78. The risk free rate is 1%, and carrying costs are $3. If the price ends up being $81 next month, then you should have ______________.

a)Waited to buy the oil

b)Entered into a futures contract

c)Bought a call option

d) Bought the oil today and held it.

17. _______________ risks have the potential for gains or losses.

a)Financial

b)Insurable

c)Pure

d)Speculative

19. Executive stock options have all of these advantages except ____________.

a)Align managers with shareholders

b)Discourage risk taking

c)Higher reported incomes on the income statement

d) Retains good managers

Many people consider the he failure to save _____________ as the start of the financial crisis.

a)AIG

b)Goldman Sachs

c)Lehman Brothers

d) Merrill Lynch

23. Which statement is FALSE?

a)Debt levels rose the most in low income areas

b)People around the world were saving too much money

c)The Federal Reserve contributed to the housing bubble by keeping interest rates too low

d)The Strong Dollar attracted money from overseas

Explanation / Answer

c)Bought a call option

c)Pure

d) Retains good managers

d) Merrill Lynch

c)The Federal Reserve contributed to the housing bubble by keeping interest rates too low

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