Which of the Following Statements Is CORRECT

question 15

Multiple Choice

Which of the following statements is CORRECT?

• A) Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.
• B) Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.
• C) Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.
• D) Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.
• E) If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

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Definitions:

Capital Requirements

The minimum amount of capital a bank or financial institution must hold as required by financial regulators.

Economies Of Scale

Financial advantages gained by businesses from their operational size, wherein the cost for each unit of production typically falls as the scale expands.

Industrial Organization Economics

A branch of economics that deals with the structure, behavior, and performance of industries and firms, including competition and regulation.

Competitive Advantage

The attributes or circumstances that allow a company to produce goods or services better or more cheaply than its competitors.