A Firm in the Extraction Industry Whose Major Assets Are

question 37

Multiple Choice

A firm in the extraction industry whose major assets are cash, equipment and a closed facility may appear to have extraordinary value. This value can be primarily attributed to:

• A) The potential sale of the company.
• B) The low exercise price held by the shareholders.
• C) The option to open the facility when prices rise dramatically.
• D) All of the above.

---

Definitions:

Underlying Asset

The specific financial instrument (e.g., stock, bond, commodity) on which a derivative's value is based.

Puts

A type of option contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specific time frame.

Strike Price

The fixed price specified in an options contract at which the holder can buy or sell the underlying asset.

Black-Scholes Model

A mathematical model used for pricing European-style options, estimating the variation over time of financial instruments.