Financial Management - Study Mode

[#921] Types of option markets do not include
Correct Answer

(C) expiry option

Explanation

Solution: Types of option markets do not include expiry option. The expiration date of an option contract is the last date on which the holder of the option may exercise it according to its terms. In the case of options with "automatic exercise" the net value of the option is credited to the long and debited to the short position holders.

[#922] In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate
Correct Answer

(A) current value of portfolio

Explanation

Solution: In binomial approach of option pricing model, value of stock is subtracted from call option obligation value to calculate current value of portfolio. It is referred to as mark-to-market and involves multiplying the current share price of the stock by the number of shares owned and summing these values for a total portfolio value.

[#923] 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.

[#924] 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.

[#925] 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.