Premium

Compared with comparable permanent coverage, a term life premium is:

1. A.ZeroNo coverage is free. Term costs less than permanent, but the insurer still charges for the mortality risk it takes on.
2. B.IdenticalIf the two cost the same, nothing would explain why anyone chooses term. The permanent premium also funds a cash value and a benefit certain to be paid eventually.
3. C.HigherThis reverses the relationship. Permanent coverage costs more because it must build cash value and fund a benefit that will be paid whenever death occurs, whereas a term policy usually expires without paying.
4. D.LowerCorrect - term is cheaper per dollar of coverage.

Why: Term premiums are lower than premiums for comparable permanent (cash-value) coverage.

A customer buys 1 call, strike 30, premium 4. At expiration the stock is exactly 30. The result is:

1. A.A gain of 400 dollarsThe 400-dollar figure is right but flows the wrong direction. Premium is money the buyer paid out, and with the call finishing at the strike there is nothing coming back to offset it.
2. B.A loss of 400 dollars (the premium)Correct - premium lost when at the money.
3. C.BreakevenThis confuses the strike with the breakeven. At 30 the call has no exercise value at all, and the customer would need the stock at 34 to recover the 4 points paid.
4. D.A gain of 3,000 dollars3,000 dollars is what 100 shares are worth at 30, which is the value of stock the customer does not own and did not buy. Owning a call at the money produces no gain of any size.

Why: At the money at expiration, the call has no intrinsic value, so the buyer loses the 4-point (400-dollar) premium.

Straight (ordinary) whole life insurance has:

1. A.Level premiums payable for the insured's whole lifeCorrect - level lifelong premiums.
2. B.Coverage only to age 65This describes coverage ending at a stated age, which is a term-to-age design. Straight whole life stays in force through maturity rather than stopping at a career milestone.
3. C.No cash valueThis confuses whole life with term. A straight whole life contract accumulates cash value that the owner can borrow against or take by surrender.
4. D.Premiums that stop after 10 yearsThis describes a limited-pay design, which compresses premiums into a shorter window. Straight whole life spreads level premiums across the insured's entire lifetime.

Why: Straight whole life has level premiums payable for the insured's entire life, with coverage to maturity.

A customer neutral on a stock they own who wants extra income can:

1. A.Buy a protective putBuying a put costs premium rather than producing it, so it cannot answer a question about generating income. It protects the downside — the opposite side of the trade from what the stem asks for.
2. B.Short the stockA short sale against the shares held cancels the exposure without producing any premium. The customer wants to keep the stock and be paid for the wait, which requires selling something to another party.
3. C.Write a covered callCorrect - income from premium in a flat market.
4. D.Buy a straddleA straddle costs two premiums and needs a dramatic move in either direction to earn them back. A stock that stays flat is the scenario in which both legs expire worthless.

Why: Writing a covered call collects premium income and suits a neutral outlook.