Which of the Following Statements Is FALSE

question 56

Multiple Choice

Which of the following statements is FALSE?

• A)Because a short position in an option is the other side of a long position,the profits from a short position in an option are just the negative of the profits of a long position.
• B)The deeper out-of-the-money the put option is,the less negative its beta,and the higher is its expected return.
• C)Although payouts on a long position in an option contract are never negative,the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option.
• D)The put position has a higher return in states with low stock prices;that is,if the stock has a positive beta,the put has a negative beta.

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Definitions:

Annual Interest Payment

The total amount of interest to be paid each year on a loan, bond, or other financial instrument.

Straight-line Method

A depreciation method that allocates an equal portion of the initial cost of an asset to each year of its useful life.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, accounting for time value of money.

Compounded Annually

A method of calculating interest where the interest is added to the principal at the end of each year, and the following year's interest is calculated on the total amount.