Which of the Following Is True for a Call Option

question 15

Multiple Choice

Which of the following is true for a call option on a stock worth $50

• A) As a stock's expected return increases the price of the option increases
• B) As a stock's expected return increases the price of the option decreases
• C) As a stock's expected return increases the price of the option might increase or decrease
• D) As a stock's expected return increases the price of the option on the stock stays the same

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Definitions:

Intrinsic Value

The inherent or actual value of an asset, investment, or company, based on underlying perception of its true value including all aspects of the business.

Annual

Refers to something occurring once every year.

Par Value

The face value or nominal value of a bond or stock, which is the amount paid out at maturity or the value on which dividend payments are calculated.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, including all interest payments and principal repayment.