Which of the following statements is most correct?
A) An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.
B) As stock price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed striking price increases.
C) Issuing options provides companies with a low cost method of raising capital.
D) The market value of an option depends in part on the option's time to maturity and on the variability of the underlying stock's price.
E) The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.
Correct Answer:
Verified
Q1: The current price of a stock is
Q2: The exercise price is the price that
Q4: An option which gives the holder the
Q5: As the price of a stock rises,
Q6: An investor who writes call options against
Q7: The value of an option depends on
Q8: The current price of a stock is
Q9: An analyst is interested in using the
Q10: Deeble Construction Co.'s stock is trading at
Q11: Warnes Motors' stock is trading at $20
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