If the Market Is in Equilibrium, Then an Option Must

question 18

True/False

If the market is in equilibrium, then an option must sell at a price that is exactly equal to the difference between the stock's current price and the option's strike price.

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Definitions:

T-statistic

A ratio that is derived from the standardized difference between two sample means divided by the standard error of the difference, used in hypothesis testing.

Sample Mean

The average value computed from a sample set of data, representative of the population mean.

Hypothesized Population Mean

This is an assumed average of a particular characteristic in a population, used as a standard for hypothesis testing in statistical analysis.

Region of Rejection

The area in the tail(s) of a statistical distribution where, if a test statistic falls, the null hypothesis is rejected in favor of the alternative hypothesis.