Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) Call options generally sell at a price less than their exercise value.
• B) If a stock becomes riskier (more volatile),call options on the stock are likely to decline in value.
• C) Call options generally sell at prices above their exercise value,but for an in-the-money option,the greater the exercise value in relation to the strike price,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 makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%,because this permits the option holder to lock in an immediate profit.

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Definitions:

Present Value

The present value of an amount of money or series of payments to be received in the future, calculated using a particular interest rate.

Credit Policy Change

Adjustments made to the guidelines that govern the extension of credit to customers, affecting terms of payment and eligibility.

One-Shot Approach

A strategy or method applied once to address an issue or solve a problem, without plans for repeated application or follow-up.

Net Present Value

A valuation method that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.