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Because of Arbitrage, an Option Should Not Sell for Less

question 23

True/False

Because of arbitrage, an option should not sell for less than its intrinsic value.

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Definitions:

Asset Price

The current market value or price at which an asset, such as a stock, bond, or commodity, can be bought or sold.

Potential Loss

The amount of money that could be lost in an investment, considering possible outcomes under various scenarios, noting the risk involved.

Long

An investment strategy where an investor purchases a security with the expectation that it will increase in value over time.

Futures Contract

An agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

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