As the Price of a Stock Rises Above the Strike

question 8

True/False

As the price of a stock rises above the strike price, the value investors are willing to pay for a call option increases because both (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have both increased.

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Definitions:

Shaping

A process in behavioral psychology involving the reinforcement of closer and closer approximations of a desired behavior.

Stimulus Discrimination

The ability to differentiate between similar stimuli and respond appropriately to each.

Variable-Ratio Schedule

A reinforcement schedule in which a response is rewarded after an unpredictable number of responses, making it highly effective for maintaining consistent behavior.

Shaping

A method of teaching new behaviors by rewarding closer and closer approximations of the desired behavior until the target behavior is achieved.