There's a Call Option Written for 100 Shares of GM

question 41

Multiple Choice

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2006: The option writer:

• A)Has the requirement to sell 100 shares of GM for $85 a share on or before the third Friday of October 2006 if the option holder wants to exercise the option.
• B)Has the option to sell 100 shares of GM for $85 a share on or before the third Friday of October 2006.
• C)Can cancel the option before the third Friday of October 2006.
• D)Does not have to post margin while the option holder does.

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Definitions:

Amortization

The process of gradually writing off the initial cost of an intangible asset over its useful life, reflecting its consumption or decline in value.

Bond Premium

The excess of a bond's market price over its nominal value.

Market Rate

The prevailing interest rate available in the marketplace for loans or investments of similar risk and maturity.

Contractual Rate

The interest rate stated in a contract, such as in a loan agreement or bond indenture, determining the amount of interest payments.