Financial Management - Study Mode
[#1131] 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.
[#1132] 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.
[#1133] 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.
[#1134] 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.
[#1135] Type of options in which buyer of options has call on 200 shares in stock is classified as
Correct Answer
(A) call option
Explanation
Solution: Type of options in which buyer of options has call on 200 shares in stock is classified as call option. Call options are agreements that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.