A ________ Is a Derivative Security That Gives the Owner

question 36

Multiple Choice

A ________ is a derivative security that gives the owner the right,but not the obligation,to buy an asset at a fixed price for a specified period of time.

• A)futures contract
• B)call option
• C)put option
• D)swap
• E)forward contract

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Definitions:

Financial Leverage

The use of borrowed funds (debt) to finance the purchase of assets, with the expectation that the profits made from this investment will be greater than the interest payable.

Financial Distress

A situation where a company is struggling to meet its financial obligations, which could lead to bankruptcy if not addressed.

Stockholders

Individuals or entities that own shares of a corporation, thus holding part ownership and potential financial gains from the corporation's performance.

Book Value

Represents the value of a company as recorded on its books, calculated by subtracting total liabilities from total assets.