Which of the Following Statements Is CORRECT

question 15

Multiple Choice

Which of the following statements is CORRECT?

• A) Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
• B) Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.
• C) Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.
• D) Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.
• E) If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

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Definitions:

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure repayment of a loan.

Attachment

A legal process in which a court designates property of the defendant to be seized or secured to satisfy a potential judgment.

Enforceable

A description of a legal agreement or contract that can be upheld or compelled by law.

Certificated Security

A security that is represented in physical, paper form rather than in electronic or digital form.