The Cost of a Security to a Company May Differ

question 20

Multiple Choice

The cost of a security to a company may differ from the security's yield in the capital markets due to:
I.Flotation costs
II.Agency costs
III.Taxes

• A)I only
• B)I and II only
• C)I and III only
• D)I and II and III

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Definitions:

Market Price

The present cost at which a product or service is available for purchase or sale in the market.

Strike Price

This is the agreed-upon price within an option contract at which the underlying asset can be bought or sold before the option expires.

Put Option

A financial derivative contract giving the holder the right but not the obligation to sell a specified amount of an underlying asset at a set price before the contract expiration.

Market Price

The current market rate for transactions involving an asset or service.