FIN 534 FINAL EXAM PART 1 & 2

Jun 27th, 2016
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PART 1 1. Which of the following statements is CORRECT? Answer If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit. Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be. Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be. Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be. Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock. 2. Which of the following statements is CORRECT? Answer Call options generally sell at a price les

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FIN 534 FINAL EXAM PART 1 & 2PART 11. Which of the following statements is CORRECT?AnswerIf the underlying stock does not pay a dividend, it does not make good economic sense toexercise a call option prior to its expiration date, even if this would yield an immediate profit.Call options generally sell at a price greater than their exercise value, and the greater the exercisevalue, the higher the premium on the option is likely to be.Call options generally sell at a price below their exercise value, and the greater the exercisevalue, the lower the premium on the option is likely to be.Call options generally sell at a price below their exercise value, and the lower the exercise value,the lower the premium on the option is likely to be.Because of the put-call parity relationship, under equilibrium conditions a put option on a stockmust sell at exactly the same price as a call option on the stock.2. Which of the following statements is CORRECT?AnswerCall options generally sell at a price less than their exercise value.If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.Call options generally sell at prices above their exercise value, but for an in-the-money option,the greater the exercise value in relation to the strike price, the lower the premium on the optionis likely to be.Because of the put-call parity relationship, under equilibrium conditions a put option on a stockmust sell at exactly the same price as

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