Call Options on XYZ Corporation's Common Stock Trade in the Market

question 6

Multiple Choice

Call options on XYZ Corporation's common stock trade in the market. Which of the following statements best describes the options, other things held constant?

• A) The price of these call options is likely to rise if XYZ's stock price rises.
• B) The higher the strike price on XYZ's options, the higher the option's price will be.
• C) Assuming the same strike price, an XYZ call option that expires in 1 month will sell at a higher price than one that expires in 3 months.
• D) If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.

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Definitions:

Interest

The cost of borrowing money or the earnings from lending money, typically expressed as a percentage of the principal.

Bond

A fixed-income investment in which an investor loans money to an entity (typically corporate or governmental) that borrows the funds for a defined period at a variable or fixed interest rate.