The Value of a Call Option at Expiration Will Be

question 46

Multiple Choice

The value of a call option at expiration will be equal to the maximum of zero or the:

• A) stock price.
• B) exercise price.
• C) stock price minus the exercise price.
• D) exercise price minus the stock price.

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Definitions:

Market Rate of Return

The average or expected rate of return on an investment in the market.

Tax Rate

The rate determining the tax payment required from a person or a corporation’s earnings.

Weighted Average Cost of Capital

A calculation of a firm’s cost of capital in which each category of capital is proportionately weighted, including equity, debt, and other forms of financing.

Market Risk Premium

The extra return investors demand for taking the risk of investing in stocks over a risk-free asset.