The Black-Scholes-Merton Option Pricing Model

question 66

Multiple Choice

The Black-Scholes-Merton option pricing model:

• A) Is used to value calls only
• B) Incorporates the stock's price, not the exercise price into its computation
• C) Base the value of an option strictly on that option's intrinsic value
• D) Considers the relationship between the market return and stock return into the option calculation
• E) Recognizes the fact that dividend yields vary from one stock to another

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Definitions:

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total net benefits to all participants in the market transaction.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers at those prices.

Supply Curve

A graphical representation showing the relationship between the quantity of a good that producers are willing to sell and the price of the good.

Consumer Surplus

The distinction between the total consumers are prepared to spend on a good or service and the actual amount they pay.