Which of the Following Statements Is FALSE

question 93

Multiple Choice

Which of the following statements is FALSE?

• A)Put-call parity gives the price of a European call option in terms of the price of a European put, the underlying share, and a zero-coupon bond.
• B)Because a put is the right to sell the share, puts with a lower exercise price are less valuable.
• C)For a given exercise price, the value of a call option is higher if the current share price is higher, as there is a greater likelihood the option will end up in-the-money.
• D)The value of an otherwise identical call option is higher if the exercise price the holder must pay to buy the share is higher.

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Definitions:

Nominal Interest Rate

The interest rate before adjustment for inflation; the stated rate on a loan or investment.

Rate of Inflation

The uplift in the general cost of products and services in an economy over an allotted period.

Consumer Price Index

A device that evaluates the average adjustment over time in the spending of urban consumers on a carefully selected series of consumer goods and services.

Real Interest Rate

The interest rate that has been modified to take inflation into account, representing the actual cost of borrowing and the genuine return on investments.