Question 6 Which of the following statements is CORRECT? Answer If the underlyin

Question

Question 6

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 points
Question 7

Deeble Construction Co.

Explanation / Answer

Question 6 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. Question 7 If Deeble's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

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