The Premium of an Option Is

question 1

Multiple Choice

The premium of an option is

• A) The price of the option.
• B) The value of the right but not the obligation to undertake a purchase or sale of the underlying asset.
• C) Is always non-negative.
• D) All of the above.

Assess the financial performance of divisions within a company and the impact of discontinuing operations.

Discuss the role of management accounting in decision-making and strategic planning.

Identify the qualitative and quantitative factors involved in make-or-buy decisions.

Differentiate between various capital budgeting approaches and understand their conceptual desirability.

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Definitions:

Time Value

The additional amount an investor is willing to pay for an option above its intrinsic value, based on the time remaining until its expiration.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified timeframe.

In-The-Money

A term used in options trading to describe an option that has intrinsic value, where the strike price is favorable compared to the current market price of the underlying asset.

Stock Price

The current price at which a share of a company is being bought or sold in the stock market.