Suppose That You Find That YBM's October 100 Put Has

question 9

Multiple Choice

Suppose that you find that YBM's October 100 put has an ask price of $4.10 and a bid price of $4.00.If you want to buy these put options to protect your holding of 400 YBM shares from declining,what is your total cost including commission? Assume that the broker charges a commission equal to a flat fee of $15 plus $2 per contract.

• A) $1,623
• B) $1,647
• C) $1,655
• D) $1,663
• E) None of these answers are correct.

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Definitions:

Face Value

The nominal value or dollar value printed on a security or a financial instrument, such as a bond or a stock certificate.

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.

Contract Rate

The predetermined fee or rate agreed upon in a contract for services rendered or goods sold.

Bonds

Long-term debt securities issued by corporations or governments to raise capital, paying interest to holders.