The Value of a Call Option Just Prior to Expiration

question 65

Multiple Choice

The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)

• A) Max [0, V - X]
• B) Max [0, X - V]
• C) Min [0, V - X]
• D) Min [0, X - V]
• E) Max [0, V > X]

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Definitions:

Gross Method

An accounting practice where purchases are recorded at the total invoice cost without deducting any purchase discounts.

Net Method

An accounting approach where discounts for early payment are assumed to be taken and thus are deducted from the cost of purchases.

Accounts Payable

Short-term liabilities representing amounts owed to suppliers or creditors for goods and services received.

Non-Interest-Bearing Note

A promissory note with no interest charged on the principal; repaid at its face value at maturity.