Fight Finance

(a) You have bought the right to buy a BHP share for $40 in 6 months.

(b) You have bought the right to sell a BHP share for $40 in 6 months.

(c) You have bought the obligation to sell a BHP share for $40 in 6 months.

(d) You have sold the right that allows your counterparty to buy a BHP share from you for $40 in 6 months. This means that you have the obligation to sell a BHP share to your counterparty for $40 in 6 months if he wants to buy it.

(e) You have sold the right that allows your counterparty to sell a BHP share to you for $40 in 6 months. This means that you have the obligation to buy a BHP share from your counterparty for $40 in 6 months if he wants to sell it.

(a) Bonds X and Y are premium bonds.

(b) Bonds X and Y are discount bonds.

(c) Bond X is a discount bond but bond Y is a premium bond.

(d) Bond X is a premium bond but bond Y is a discount bond.

(e) Bonds X and Y are par bonds.

(a) Cash available to distribute to creditors and stockholders.

(b) Cash flow to creditors minus cash flow to stockholders.

(c) Net income (or earnings) plus depreciation plus interest expense.

(d) Net income minus the increase in net working capital.

(e) Net income minus net capital spending minus the increase in net working capital.

(a) Assets.

(b) Liabilities and owner's equity.

(c) Current assets and current liabilities.

(d) Dividends and buy backs.

(e) Net income, also known as earnings or net profit after tax.

(a) ##f_{LF,T}=S_T+K_T##

(b) ##f_{LF,T}=-S_T-K_T##

(c) ##f_{LF,T}=S_T-K_T##

(d) ##f_{LF,T}=K_T-S_T##

(e) ##f_{LF,T}=S_T##

(a) Mr Blue's expected utility of wealth from gambling is 7.5 while refusing is 8.54. So the gamble makes him less happy.

(b) Miss Red's expected utility of wealth from gambling is 5 and refusing is also 5. So the gamble doesn't affect her happiness at all.

(c) Mr Blue's certainty equivalent of the risky gamble is $25. This is less than his current wealth which is why he would refuse.

(d) Miss Red's certainty equivalent of the risky gamble is any wealth. She's indifferent since she always has the same level of happiness.

(e) Mrs Green's certainty equivalent of the risky gamble is $25. This is less than her current wealth which is why she would refuse.

(a) Mr Blue is as happy with zero wealth as he is with $1,000. Similarly for Miss Red and Mrs Green.

(b) All of the people would appear irrational to an economist. Though Mr Blue appears to be rational when he has more than $192 in wealth.

(c) Mr Blue is risk averse. Miss Red is risk neutral. Mrs Green is risk loving.

(d) Miss Red is totally indifferent to how much wealth she has. She doesn't care about gaining or losing money.

(e) Mr Blue prefers more to less up to a wealth of around $192. At about $192 he is the happiest he can be. This is his bliss point. With more than $192 he becomes less happy.

(a) $37

(b) $42

(c) $44

(d) $45

(e) $48

(a) Alice buys Alan’s shares using their share brokers and the securities exchange.

(b) Bell buys Bob’s house using his real estate agent.

(c) Carla lends Carlos money at an interest rate of 10% pa for 3 years.

(d) Dora lends money to her bank at 2% pa and the bank lends the funds to David at 5% pa.

(e) Eve buys Ernie’s government bond using their brokers and the securities exchange.

(a) Hedgers.

(b) Speculators.

(c) Arbitrageurs.

(d) Market makers.

(e) Insider traders.