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:

Shareholders

Individuals or entities that own shares in a corporation, giving them partial ownership and certain rights within the company.

Share Exchange

A process in which some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, and both corporations continue to exist.

Holding Company

A company whose business activity is holding shares in another company.

Boards of Directors

Governing bodies elected by shareholders to make major decisions regarding a corporation's affairs, including setting strategies and overall management oversight.