A Stock That Pays No Dividends Has a Price of $40

question 1

Multiple Choice

A stock that pays no dividends has a price of $40. If the interest rate is zero, then which if the following statements is valid?

• A) The three-month call is worth less than the two-month call.
• B) The time value of the three-month call is the same as that of the two-month call.
• C) The insurance value of the three-month call is the same as that of the two-month call.
• D) The intrinsic value of the three-month call is less than that of the two-month call.

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Definitions:

Benefits to Cost Ratio

The comparison of benefits gained from a particular action or investment to the costs incurred by implementing it, often used to evaluate financial efficiency.

BCR

Benefit-Cost Ratio, a numerical expression comparing the benefits of an action or project to its costs.

Technical Skills Certificate Program

A formal recognition of an individual's competence and proficiency in specific technical or vocational skills, usually acquired through a short-term educational or training process.

Cost Effectiveness

A measure of how effectively resources (money, time, effort) are used to achieve a desired outcome or goal.