Stocks That Have More Volatile Price Changes Have More Valuable

question 34

Multiple Choice

Stocks that have more volatile price changes have more valuable call options because call holders:

• A) capture upside potential without downside risk.
• B) realize that volatility decreases the present value of the exercise price.
• C) have too little variability in the exercise price.
• D)have transferred all risk to put holders.

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Definitions:

Government Failure

A situation where government intervention in the economy causes inefficiencies or leads to a misallocation of resources.

Government Intervention

Actions taken by a government to affect or control various aspects of the economy, such as regulations, subsidies, tariffs, and taxes to correct market failures and promote economic stability.

Regulatory Capture

A situation where regulatory agencies are dominated by the industries they are supposed to be regulating, leading to decision making that benefits the industry at the expense of the public good.

Economic Efficiency

A situation in which it is not possible to improve overall economic welfare by reallocating resources amongst individuals, implying no waste is occurring.