Which of the Following Is Correct

question 227

Multiple Choice

Which of the following is correct?

• A) The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises.
• B) The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.
• C) The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate.
• D) The asset demand for money is downsloping because bond prices and the interest rate are directly related.

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Definitions:

Exercise Value

Equal to the current price of the stock (underlying the option) less the strike price of the option.

Call Options

Financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Strike Price

The price stated in the option contract at which the security can be bought (or sold). Also called the exercise price.

Premium

An amount paid in addition to the standard or nominal cost, often for insurance, bonds, or superior products or services.