Financial Management - Study Mode
[#1021] According to exercise value and option price, market value of option will be zero when
Correct Answer
(C) stock price is zero
Explanation
Solution: According to exercise value and option price, market value of option will be zero when stock price is zero. The strike price is defined as the price at which the holder of an options can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.
[#1022] An excess of actual price of option over an exercise value of option is classified as
Correct Answer
(A) time value options
Explanation
Solution: An excess of actual price of option over an exercise value of option is classified as time value options. In options trading, time value refers to the portion of an option's premium that is attributable to the amount of time remaining until the expiration of the option contract.
[#1023] At last day when European and American option can be exercised is classified as
Correct Answer
(C) expiration date
Explanation
Solution: At last day when European and American option can be exercised is classified as expiration date. An expiration date in derivatives is the last day that a derivative, such as options or futures, is valid. On or before this day, investors will have already decided what to do with their expiring position.
[#1024] Current value of stock in portfolio with current option price Rs 20 is Rs 50, then present value of portfolio would be
Correct Answer
(A) Rs 30.00
Explanation
Solution: Present value of portfolio = Current value of portfolio - Current option price = Rs. 50 - Rs. 20 = Rs. 30.
[#1025] Situation in financial options in which strike price is less than current price of stock is classified as
Correct Answer
(A) in-the-money
Explanation
Solution: Situation in financial options in which strike price is less than current price of stock is classified as in-the-money. A call option is in the money (ITM) if the market price is above the strike price. A put option is in the money if the market price is below the strike price.