Which One of the Following Is the Upper Price Bound

question 25

Multiple Choice

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

• A) $0
• B) strike price
• C) stock price
• D) Max (S - K, 0)
• E) Max (K - S, 0)

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Definitions:

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, often used in finance to gauge the risk associated with a particular investment.

Riskiness

The degree to which the return on an investment can vary, indicating the uncertainty and potential for loss in an investment.

Stock's Standard Deviation

A statistical measure representing the volatility or risk associated with the stock's return, showing how much the stock's returns can deviate from its average return.

Security Risk

The potential for a loss in value of an investment due to factors affecting the security itself or its issuer, such as default risk or market volatility.