At What Point Does the Value of a Call Option

question 52

Multiple Choice

At what point does the value of a call option lie furthest above its lower bound (that is,the maximum of zero or the stock price − exercise price) ?

• A) When the stock price is zero.
• B) When the stock price is very high relative to the exercise price.
• C) When the stock price equals the exercise price.
• D) It depends on the maturity of the option.

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Definitions:

Type I Error

A statistical error made by rejecting the null hypothesis when it is actually true, known as a false positive.

Type II Error

The failure to reject a false null hypothesis, also known as a "false negative."

Null Hypothesis

A statement positing that there is no significant difference or effect, serving as the default assumption in hypothesis testing.