Which of the Following Expressions Represents the Value of a Call

question 36

Multiple Choice

Which of the following expressions represents the value of a call option to its holder on the expiration date?

• A) S_T − X if S_T > X, 0 if S_T ≤ X
• B) − (S_T − X) if S_T > X, 0 if S_T ≤ X
• C) 0 if S_T ≥ X, X − S_T if ST < X
• D) 0 if S_T ≥ X, − (X − S_T) if S_T < X

---

Definitions:

Social Optimum

The ideal state of resource allocation in which society's overall welfare is maximized, balancing efficiency and equity among individuals.

Market Equilibrium

The point in a market where the quantity demanded by consumers equals the quantity supplied by producers, resulting in a stable price.

Negative Externality

An adverse effect on a third party not directly involved in a transaction, which results from economic activity without compensation.

Negative Externality

A cost suffered by a third party due to an economic transaction, without compensation.