1. You buy an insurance policy on your car. The contract represents that, if the car has incurs more than $500 worth of damage, the insurance company will pay for the amount of the bill in excess of that amount. Which statement below is most accurate?
A. You are the issuer of a put option, and the insurance company is the purchaser of that put option.
B. You are the buyer of a call option, and the insurance company is the seller of that call option.
C. You are the purchaser of a put option, and the insurance company is the seller of that put option.
D. You are the seller of a call option, and the insurance company is the buyer of that call option.
If a security has mean-zero cash flows...
A. it is worth zero right now.
B. it is a positive NPV investment.
C. it has the beta of the market portfolio.
D. it is identical to investing in a Treasury bill.