The Following Depicts the Value of a Call Option

question 45

Multiple Choice

The following depicts the value of a call option.Match the descriptions in the Legend with the correct numbers on the graph.

Legend:
Time Value
Underlying asset price
Strike price
Intrinsic value of a call
Payoff/profit/option value

• A)1, 2, 3, 4, 5 respectively
• B)5, 3, 2, 4, 1 respectively
• C)4, 1, 2, 5, 3 respectively
• D)5, 1, 2, 4, 3 respectively

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, granting holders voting rights and a share in the company’s profits via dividends.

Treasury Shares

Shares that were once part of the circulating supply of stock but were subsequently reacquired by the issuing company, reducing the amount of outstanding stock on the open market.

Financing Activities

Processes that involve the flow of cash between a company and its owners and creditors, affecting the equity and debt of the business.

Cash Flow

The total amount of money being transferred into and out of a business, primarily affecting the company's liquidity.