The Characteristics of a Call Option Are Best Described as Follows

question 64

True/False

The characteristics of a call option are best described as follows:
A. It allows the holder to sell the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to a decrease in the value of the option (and vice versa). The holder usually does not have to exercise the option and would choose not to if the share price were above the exercise price.
B. It allows the holder to buy the shares of the specified company at a prespecified (strike or exercise) price. The exercise price will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the exercise price (and vice versa). The holder is committed to exercise the option or close out the contract by taking a put option position in the market.
C. It allows the holder to buy the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the value of the option (and vice versa). The holder usually does not have to exercise the option and would choose not to if the share price fell below the exercise price.
D. It allows the holder to sell the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the value of the option (and vice versa). While the holder of a put option usually does not have to exercise the option and would choose not to if the share price fell below the exercise price, the holder of a call option must either complete the contract or close it out by taking out a put option for the same number of shares in the market.
E. None of the given answers.

Recognize the importance of professional assistance and resources available for business plan development.

Understand the process of financial projections and their comparison to industry averages.

Understand the importance and components of a business plan.

Identify strategies for setting competitive prices and targeting the appropriate market.

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Definitions:

Double Taxation

A situation in which the same income is taxed twice; this often occurs with corporate income taxes where earnings are taxed at the corporate level and again when distributed as dividends to shareholders.

Start-Up Investment

Start-up investment refers to the initial capital required to start a new business, including costs for product development, market research, and operational expenses.

Sole Proprietorship

A business structure in which a single individual owns and operates the business, bearing sole responsibility for its debts and liabilities.

UPA

Stands for Uniform Partnership Act, which is a set of laws adopted by various states in the United States that governs partnerships.