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.

---

Definitions:

TFC

Total Fixed Cost, which is the sum of all costs that remain constant regardless of the level of production or output.

TVC

Total Variable Costs, which are the costs that change with the level of production or service delivery.

MC

Refers to Marginal Cost, the extra cost incurred from producing one more unit of a good or service.

Profit-Maximizing

Profit-Maximizing refers to the point at which a firm achieves the highest possible profit through the manipulation of production or pricing strategies.