Which of the Following Statements Is CORRECT

question 17

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:

Instincts

Innate, biologically determined behavior patterns common to all members of a species that are exhibited by all individuals in the absence of learning or experience.

Physiological State

The condition of the body or bodily functions at a given time, taking into account both internal and external factors.

Homeostasis

The body’s tendency to maintain an equilibrium, or steady state.

Homeostasis

The self-regulating process by which biological systems maintain stability while adjusting to changing external conditions.