The Higher the Exercise Price

question 43

Multiple Choice

The higher the exercise price:

• A) the higher the call price.
• B) The lower the call price.
• C) Has no effect on call price.
• D) The higher the stock price.
• E) The lower the stock price.

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Definitions:

Adverse Selection

A situation in insurance and finance where individuals with higher risks are more likely to purchase or participate in a plan, leading to higher than expected costs for insurers or lenders.

Marginal Benefit

The extra utility or satisfaction obtained through the consumption of an additional unit of a good or service.

Pollution Abatement

Actions or measures taken to reduce, control, or eliminate pollution from various sources.

Producer Surplus

The difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.