Which of the Following Statements Is CORRECT

question 10

Multiple Choice

Which of the following statements is CORRECT?

• A)If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.
• B)Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
• C)Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.
• D)Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.
• E)Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

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Definitions:

Formal Operations

Piaget’s final stage of cognitive development, characterized by the ability to think abstractly.

Piaget

Refers to Jean Piaget, a Swiss psychologist known for his pioneering work in child development and his theory of cognitive development.

Sensorimotor

A developmental stage in infants and toddlers coined by Piaget that involves learning through interacting with the environment, using sensory experiences and motor actions.

Formal Operations

the final stage of cognitive development in Piaget’s theory, characterized by the ability to think abstractly, logically, and systematically.