An Option Contract That Gives the Buyer the Right to Exercise

question 116

Multiple Choice

An option contract that gives the buyer the right to exercise the option at the average of the prices of the underlying during its life is called:

• A) European-style option
• B) American-style option
• C) Bermudan option
• D) Asian option

Understand the agency problem and how it affects the operations of a corporation.

Grasp the role and impact of stakeholders in corporate governance.

Distinguish between primary and secondary markets and their functionalities.

Understand capital structure and its importance in corporate finance.

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Definitions:

Rational

Characterized by clear, logical thinking, often referring to decision-making that maximizes benefit.

Irrational

Acting without reason or understanding, often defying logical or expected behavior, particularly in economic contexts referring to market participants.

Weak-form Efficient

A form of market efficiency that asserts all past trading information is fully reflected in stock prices, and thus, technical analysis cannot consistently produce excess returns.

Behavioral Patterns

Regularities in the behavior of individuals or groups, often studied in psychology and economics to predict responses to stimuli or decisions.