Which of the Following Statements Is CORRECT

question 21

Multiple Choice

Which of the following statements is CORRECT?

• A) An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.
• B) As the stock's price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.
• C) Issuing options provides companies with a low cost method of raising capital.
• D) The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price.
• E) The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.

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Definitions:

Change Bar

A vertical line or marker in the margin of a document indicating where changes have been made, often used in draft versions or revisions.

Listen Effectively

The skill of actively understanding information provided by the speaker in a way that is objective and retains the message accurately.

Clarify

To make something easier to understand by explaining it more clearly.

Distracting

Something that diverts attention away from the main focus or task, often leading to a decrease in productivity or concentration.