Which of the Following Statements Is False

question 26

Multiple Choice

Which of the following statements is false?

• A) Because a short position in an option is the other side of a long position, the profits from a short position in an option are just the negative of the profits of a long position.
• B) The deeper out-of-the-money the put option is, the less negative its beta, and the higher is its expected return.
• C) Although payouts on a long position in an option contract are never negative, the profit from purchasing an option and holding it to expiration could well be negative because the payout at expiration might be less than the initial cost of the option.
• D) The put position has a higher return in states with low stock prices; that is, if the stock has a positive beta, the put has a negative beta.

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Definitions:

Natural Log

The logarithm to the base e (approx. 2.718), used in mathematics and sciences to model growth processes.

Exponential

Pertaining to mathematical functions or models that exhibit growth or decay at a constant rate, often used in compound interest and population growth models.

Odds Ratio

A measure of association between an exposure and an outcome, representing the odds that an outcome will occur given a particular exposure, compared to the odds of the outcome occurring in the absence of that exposure.

Student Government Elections

A democratic process in educational institutions where students vote to elect representatives for their student body.