Call Options Are Purchased with the Expectation That the Market

question 14

True/False

Call options are purchased with the expectation that the market price of the underlying security will rise while put options are purchased with the expectation that the market price of the underlying security will fall.

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Definitions:

Market Interest Rates

The prevailing rates at which interest is paid on borrowings or earned on investments in the financial market.

Call Features

Provisions embedded in financial instruments, like bonds, that allow the issuer to repurchase or redeem the instrument before its maturity date.

Call Penalties

Fees or costs that a borrower must pay a lender for the privilege of paying a loan off earlier than the agreed payment schedule.

Call Premiums

The amount by which the price of a callable bond or preferred stock exceeds its par value or redemption price, often stipulated as a penalty for early redemption by the issuer.