Cathy Limited Buys an Option That Entitles It to Purchase

question 12

Multiple Choice

Cathy Limited buys an option that entitles it to purchase 3000 shares in Colin Limited at $6 per share at any time in the next 6 months.The derivative financial instrument in this transaction is the:

• A)shares in Cathy Limited.
• B)shares in Colin Limited.
• C)option priced at $6 per share.
• D)market price of the shares in Colin Limited after 6 months have elapsed.

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Definitions:

Independent Events

Multiple events where the happening of one does not influence the likelihood of the other events happening.

P(A ∩ B)

P(A ∩ B) denotes the probability of the intersection of events A and B, meaning the probability that both A and B occur.

Occurrence

An event or incident that happens or takes place.

Experiment

A scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact.