Which of the Following Statements Is True About the Purchase

question 3

Multiple Choice

Which of the following statements is true about the purchase of a protective put at a higher exercise price relative to a lower exercise price?

• A)the breakeven is lower
• B)the maximum loss is greater
• C)the insurance is less costly
• D)the insurance is more costly
• E)none of the above

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Definitions:

Profits

Profits represent the financial gain obtained when the revenues generated from business activities exceed the expenses, costs, and taxes needed to sustain the operation.

Nonparticipating

A term used to describe policies or investments that do not share in the profits or surplus of a company, such as nonparticipating life insurance policies that do not pay dividends.

Non-cumulative

Refers to types of shares or dividends that do not accumulate or carry over unpaid dividends into future periods.

Non-cumulative

Describes preferred stocks where dividends not declared in a given period do not accumulate and are not required to be paid in the future.