22.Which of the following are ways to avoid losses through insuring? (a)Pay a premium for health care coverage (b)Purchase a put option on a stock you do own (c)Both a and b (d)Neither a nor b Answer:(c) Questions 23-25 refer to the following information: An old college friend of your invests in cocoa futures and options contracts.He has told you that he believes cocoa prices are escalating.You decide to go ahead and purchase a call option on cocoa with a strike price of $0.80 per pound.That way,if cocoa prices go up,you can exercise the call,buy the cocoa and sell them at a higher spot price. Assume the price of an option on fifty thousand pounds is one thousand five hundred dollars,and you purchase six options for nine thousand dollars on three hundred thousand pounds. 23.What type of transaction is this for you? (a)hedged position (b)speculative (c)insured position (d)none of the above Answer:(b) 24.Calculate the downside risk in dollars and percentage terms. (a)$1,500:+100% (b)$1,500:-100% (c)$9,000;-100% (d)$9,000;+100% Answer:(c) 25.If the price increases to $0.85 cents per pound,how much would you net after paying for the options? (a)$15,000 (b)$13,500 (c)$9,000 (d)$6,000 Answer:(d) 11-611-6 22. Which of the following are ways to avoid losses through insuring? (a) Pay a premium for health care coverage (b) Purchase a put option on a stock you do own (c) Both a and b (d) Neither a nor b Answer: (c) Questions 23-25 refer to the following information: An old college friend of your invests in cocoa futures and options contracts. He has told you that he believes cocoa prices are escalating. You decide to go ahead and purchase a call option on cocoa with a strike price of $0.80 per pound. That way, if cocoa prices go up, you can exercise the call, buy the cocoa and sell them at a higher spot price. Assume the price of an option on fifty thousand pounds is one thousand five hundred dollars, and you purchase six options for nine thousand dollars on three hundred thousand pounds. 23. What type of transaction is this for you? (a) hedged position (b) speculative (c) insured position (d) none of the above Answer: (b) 24. Calculate the downside risk in dollars and percentage terms. (a) $1,500; +100% (b) $1,500; –100% (c) $9,000; –100% (d) $9,000; +100% Answer: (c) 25. If the price increases to $0.85 cents per pound, how much would you net after paying for the options? (a) $15,000 (b) $13,500 (c) $9,000 (d) $6,000 Answer: (d)