Which One of the Following Statements Concerning the Relationship Between

question 70

Multiple Choice

Which one of the following statements concerning the relationship between time to option maturity and call and put prices is correct?

• A)Put and call prices increase at the same rate as the time to option maturity increases.
• B)Put prices and time to maturity are inversely related.
• C)Call prices tend to increase faster than put prices as the time to option maturity increases.
• D)Put prices increase while call prices remain constant as the time to option maturity increases.
• E)Call prices are inversely related to time to maturity.

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Definitions:

Bond Principle

The face value of a bond or the amount that the issuer agrees to pay the bondholder upon the maturity of the bond.

Yield To Maturity

The total return anticipated on a bond if the bond is held until its maturity date, taking into account both interest payments and capital gains or losses.

Coupon Rate

The interest rate on a bond that the issuer promises to pay to the bondholder until maturity.

Premium

The amount by which the price of something, especially a financial security, exceeds its principal or face value.