Which of the following is TRUE? O An American call option on a stock should never be exercised early O An American call option on a stock should not be exercised early when no dividends are expected O It can be optimal to exercise early an American call option on a stock when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should be exercised early when no dividends are expected

Which of the following is TRUE? O An American call option on a stock should never be exercised early O An American call option on a stock should not be exercised early when no dividends are expected O It can be optimal to exercise early an American call option on a stock when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should be exercised early when no dividends are expected

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Discuss which of the following statements is true. I. An American call option is cheaper than a European call option because we lose the insurance value of the call if we exercise early. II. An American call option is more expensive than a European call option because of the time value of money. III. An American call option is more expensive than an American put option because call options give the right to buy the stock and not to sell it. IV. An American put option is more expensive than a European put option because of the time value of money.
If the underling is a liability rather than an asset, then the strike price of the option should be negative. True False
4a) A trader observes an American option and a European option with the same strike price, expiration, and underlying stock. He believes that the European option will have a higher premium than the American option. Critique his belief that the European option will have a higher premium.
Hedging a portfolio a. Will generate above average returns when options expire b. none of the answers given c. Will generate below average returns when options expire without being used d. Will generate riskless payoffs when options expire
15. Which of the following statements is FALSE? A) The intrinsic value of an option is the value it would have if it expired immediately. B) A European option cannot be worth less than its American counterpart. C) Put options increase in value as the stock price falls. D) A put option cannot be worth more than its strike price.
Which of the following is TRUE? O An American call option on a stock should never be exercised early O An American call option on a stock should be exercised early when dividends are expected O It can sometimes be optimal to exercise early an American call option on a stock even when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should never be exercised early when no dividends are expected << Previous Next ▸
It's acceptable to use the Black-Scholes formula or binomial trees to value real options,even though the options are not traded.Do you agree with this statement?What is the key assumption of the valuation method?
If an investor can earn abnormal returns based on insider trading, the stock market is at best Multiple Choice inefficient. weak form efficient. semistrong form efficient. strong form efficient.
Select all that are true with respect to option valuation: Group of answer choices The holder of a call option has rights to the dividend on the underlying stock. The holder of a put option has rights to the dividend on the underlying stock. A call option on a dividend paying stock would be worth less than a call option on that same stock if it were non-dividend paying (i.e., all else is equal other than the dividend). A call option on a dividend paying stock would be worth more than a call option on that same stock if it were non-dividend paying (i.e., all else is equal other than the dividend).
Which of the following is true concerning short sales of exchange-listed stocks? Question 6 options: You are likely to get a margin call when the stock price drops The potential loss from short selling is limited to the proceeds from the short sale Proceeds from the short sale must be kept on deposit with the broker until you close the position Short-sellers do not need to post margin
Explain why an American call options on futures could be optimally exercised early while call options on the spot can not be optimally exercised. Assume that there is no dividend. Explain how to use call options and put options to create a synthetic short position in stock.
Which of the below statements is false about real options? A. Real options increase firm value B.Investing in a project can be priced as an American call option C.Abandoning a project can be priced as an American put option D.Growth options have no impact on the market value of the firm

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