Financial Management - Study Mode
[#466] According to Black Scholes model, selling and buying of stock have
Correct Answer
(B) transaction costs
Explanation
Solution: According to Black Scholes model, selling and buying of stock have transaction costs. Transaction costs are expenses incurred when buying or selling a good or service.
[#467] Stock option is more worthwhile if it is
Correct Answer
(A) extremely volatile
Explanation
Solution: Stock option is more worthwhile if it is extremely volatile. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date.
[#468] According to Black Scholes model, call option is well exercised on its
Correct Answer
(B) expiry date
Explanation
Solution: According to Black Scholes model, call option is well exercised on its expiry date. Black-Scholes is a pricing model used to determine the fair price or theoretical value for a call or a put option based on six variables such as volatility, type of option, underlying stock price, time, strike price, and risk-free rate.
[#469] Sellers of options in financial markets are classified as
Correct Answer
(B) option writer
Explanation
Solution: Sellers of options in financial markets are classified as option writer. A writer of a call option promises to sell the underlying investment to the call purchaser, who has bought the right to purchase it at a specific price.
[#470] In option pricing, an increasing in option price due to
Correct Answer
(A) time of expiry increases
Explanation
Solution: In option pricing, an increasing in option price due to time of expiry increases. Option pricing is the amount per share at which an option is traded. Although the option holder is not obligated to exercise the option, the seller must buy or sell the underlying instrument if the option is exercised.