You Own Stock in a Firm That Has a Pure

question 113

Multiple Choice

You own stock in a firm that has a pure discount loan due in six months. The loan has a face value of $50,000. The assets of the firm are currently worth $62,000. The stockholders in this firm basically own a _____ option on the assets of the firm with a strike price of:

• A) Put; $62,000.
• B) Put; $50,000.
• C) Warrant; $62,000.
• D) Call; $62,000.
• E) Call; $50,000.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with dividend priority.

Common Stock

A form of corporate equity ownership, a type of security representing ownership in a corporation.

Dividend

A payment made by a corporation to its shareholders, usually derived from the company’s profits.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with dividends that are paid out before those of common shareholders.