Which of the Following Statements About Put and Call Options

question 2

Multiple Choice

Which of the following statements about put and call options is false?

• A) They are a form of deferred equity financing by the firm.
• B) They provide the buyer with an opportunity to earn larger returns than simply buying or selling ordinary shares.
• C) They can be used to lock in a gain or prevent a loss on a shareholding.
• D) They are traded on organized exchanges.

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Definitions:

Semi-Annually Compounded

Interest or finance charges are applied to the principal sum twice a year, causing the investment or loan to grow at a faster rate than simple annual compounding.

RSP

Registered Savings Plan, a financial account in Canada designated for holding savings and investment assets, with special tax benefits for retirement savings.

Monthly Compounded

Pertains to interest or any financial metric that is calculated and added to the principal balance every month.

Nominal Rate

The stated interest rate of a bond or loan, not accounting for compounding or inflation effects.