Legit CSC1 Exam Download

An option is "in-the-money" when it has intrinsic value:

For aput option, it is in-the-money when the underlying asset’s price isbelowthe strike price, allowing the holder to sell the asset at a higher price (strike price).

Incorrect options clarify the following:

A call option is in-the-money when the underlying asset’s price isabovethe strike price.

The shares held by institutional investors, along with other shares available for trading by the public, are referred to as thepublic float shares. These are the issued shares of a company that are actively traded in the market, excluding restricted shares held by insiders or strategic investors.

Other options:

Issued shares: Includes all shares a company has issued, including restricted shares.

Outstanding shares: Includes all shares held by all shareholders, including restricted shares and shares not available for trading.

Market capitalization shares: Not a term used to describe shares; market capitalization is a measure of a company's total value based on its stock price and outstanding shares.

References:

Volume 1, Chapter 8:Equity Securities, section on "Public Float and Market Capitalization" explains the concept of public float shares​.

Aninterest rate forward agreement (FRA)is anover-the-counter (OTC)derivative contract. Unlike exchange-traded derivatives, OTC contracts are not centrally cleared, meaning there is no intermediary to guarantee performance. This increases counterparty (default) risk, making FRAs inherently riskier than exchange-traded contracts.

A. Individual investor buying shares on an exchange during the ex-rights period: This is a standard transaction involving equity securities, not derivatives, and carries no default risk.

C. Exchange-traded equity option contract between an individual investor and a dealer: Exchange-traded derivatives are backed by a clearinghouse, which mitigates default risk.

D. Individual investor entering a futures contract with an institutional investor: Futures contracts are also exchange-traded and centrally cleared, reducing default risk.

Preferred shares provide investors withpriority to receive fixed dividends ahead of common shareholders. This fixed income feature makes preferred shares similar to debt instruments but with characteristics of equity. While preferred shareholders have no guaranteed dividend payment (subject to the company’s discretion and profitability), they are entitled to receive dividends before any distribution to common shareholders.

Preferred shares do not have a higher potential for capital appreciation compared to common shares, as they are typically designed for income rather than growth. Additionally, preferred shareholders have a lower claim on assets compared to debt holders.