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Question 2-34C

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Essentials Of Investments
Found in: Page 52
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Explain the difference between a call option and a long position in a futures contract.

Call option-Right to purchase an asset at a stipulated exercise price

Long position- Commits to purchasing the asset even if asset value increases.

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Step by Step Solution

Definition

The right to purchase an asset at a stipulated exercise price on or before expiration date is called call option. The long position in futures contract commits to purchasing the asset even if asset value increases.

Difference

Difference between a put option and short position in futures contract

Put option

Long Position

1. It is the right to purchase an asset at the stipulated exercise price on or before expiration date.

1. It is an obligation to buy the underlying asset at the future’s price.

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