Which of the Following Statements Is False

question 24

Multiple Choice

Which of the following statements is false?

• A) Because an American option cannot be worth less than its intrinsic value, it cannot have a negative time value.
• B) An American option with a later exercise date cannot be worth less than an otherwise identical American option with an earlier exercise date.
• C) The value of an option generally decreases with the volatility of the stock.
• D) The intrinsic value is the amount by which the option is currently in-the-money or 0 if the option is out-of-the-money.

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Definitions:

Dividends

payments made by a corporation to its shareholder members, usually derived from the company's profits.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governments, entitling them to receive interest and the return of principal.

Present Value

The value today of a future monetary sum or sequence of cash inflows, calculated with a defined return rate.

Interest Rate

The rate of a loan designated as interest to the borrower, typically represented as an annual percentage of the loan's unpaid balance.