Show graphically and explain the profits and losses of buying futures relative to buying call options
What will be an ideal response?
See figure below.
As shown in the graph, the profit-loss function for futures is linear. Both gains and losses grow linearly for each $1 change in the underlying security price at expiration. The profit curve for options is nonlinear. The loss is limited to the amount of the premium. Profits are a linear function of the asset price at expiration, but profits from options are always less than for futures by the amount of the premium. The key differences are that options losses are limited, while futures losses are not. Gains for futures and options are linear functions of the expiration price, but option profits are always less than futures profits by the amount of the premium.
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Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimism—factors he referred to as "animal spirits."
A) unplanned investment spending B) actual investment spending C) planned investment spending D) autonomous consumer expenditures
Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?
A) Gold would flow into the United States. B) The U.S. monetary base would decline. C) Prices in the United States would fall. D) The United States would experience a balance of trade deficit.
The price of bread is $1.50 per pound and the price of butter is $3 per pound. Steve has an income of $30, with which he buys 4 pounds of bread. How many pounds of butter does he buy, assuming he buys nothing else and he maximizes his utility?
A. 8 B. 12 C. 4 D. There is not enough information to answer the question.
A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance the firm's demand curve will be P = 20 ? Q and a 50 percent chance it will be P = 40 ? Q. The marginal cost of the firm is MC = Q. The expected profit-maximizing quantity is:
A. 15. B. 20. C. 5. D. 10.