Figure 8.11 -Refer to Figure 8.11. If Fred's Profit in the Second

question 207

Multiple Choice

Figure 8.11
-Refer to Figure 8.11. If Fred's profit in the second rectangle from the top were 1,600 instead of 1,500 then the path of the game would be

• A) Fred chooses a small quantity and Barney enters.
• B) Fred chooses a large quantity and Barney stays out.
• C) Fred chooses a large quantity and Barney enters.
• D) Fred chooses a small quantity and Barney stays out.

---

Definitions:

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at a set price within a specific period.

Firm Completion

A commitment to finish a project or deliver a product by a specified date.

Asymmetric Information

Assumes managers have more complete information than investors about a firm’s prospects—can have an important effect on capital structure.

Diversified Portfolios

Investment strategies involving the mixing of various asset classes and securities to reduce risk through diversification.