Question 4 (10 Marks) Circle the relevant answer below: Malcolm Fraser believes that the BHP share price will fall in three months' time. The market does not believe this. 1. To profit from a fall in the BHP share price he should purchase a (1)_ option. 2. Buying an option means that you have a (2)position. 3. If the exercise price of the option he buys is $10 and current spot price is $11 then Malcolm Fraser is (3) 4. He has paid $1 for these options. This is known as the option () 5. An option's value is a function of its (5) 6. If Fraser purchased a American option, the value of the option will (6) when time to maturity decreases. 7. If Fraser purchased a European option, the value of the option will (7 when time to maturity decreases. 8. Most people would find a(n) (8) option more flexible and valuable. 9. The most Fraser could lose on his purchase of the option is (9 10. The person who has sold Fraser the option is known as the (10) Circle the correct answer below Call Put 2. Long Short 3. In the Money At the Money Out of the Money 4. Premium Amount Strike price 5. Time value Intrinsic Value Intrinsic +Time Value 6. Increase Decrease Stay the same 7. Increase Decrease Stay the same 8. European American 9. Unlimited The Price he paid. 10. Writer Author Poet