Which of the Following Statements Is False

question 15

Multiple Choice

Which of the following statements is false?

• A)If the underlying stock does not pay dividends, an investor should never exercise an American call option early.
• B)The Black-Scholes formula can be used to determine the value of American call options on non-dividend paying stocks.
• C)The Black-Scholes formula can be used only to calculate the values of call option; it does not apply to put options.
• D)The Black-Scholes formula was developed using European options and, therefore, can calculate the value of an American call option only on its final expiration date.

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Definitions:

Major Repairs

These are significant expenditures to restore or improve an asset, extending its useful life.

Annual Cash Operating Costs

The total amount of money a company spends on its day-to-day operations within a fiscal year.

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by discounting all future cash flows to their present value and subtracting the initial investment.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency of the business.