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:

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments and are sold at a discount from their face value.

Market Price

The current price at which an asset or service can be bought or sold on the open market.

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) at regular intervals until the maturity date, when the principal amount is repaid.

Market Yield

The current return on investment for a security, factoring in its price variations and dividend payments.