If We Define the "Premium" on an Option to Be

question 3

True/False

If we define the "premium" on an option to be the difference between the price at which an option sells and the exercise value (or the difference between the stock's current market price and the strike price), then we would expect the premium to increase as the stock price increases, other things held constant.

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Definitions:

Direct Method

An accounting approach where costs are directly traced to objects, such as products or services, without using cost drivers or allocation bases.

Cost of Goods Sold

The direct expenses tied to the production of goods sold by a company, including the cost of the materials and labor directly used to create the good.

Direct Method

A way of preparing the cash flow statement where actual cash flow information from the company's operations is used, instead of being derived from the income statement.

Cost of Goods Sold

The expenses directly tied to the manufacturing of the products a company sells, including labor and materials.