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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