Which one of the following can be sold prior to expiration? Group of answer choices Call options can be sold prior to expiration but put options cannot. Put options can be sold prior to expiration but call options cannot. No option can be sold prior to expiration. Both American and European options can be sold prior to expiration

Which one of the following can be sold prior to expiration? Group of answer choices Call options can be sold prior to expiration but put options cannot. Put options can be sold prior to expiration but call options cannot. No option can be sold prior to expiration. Both American and European options can be sold prior to expiration

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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True/false An option is a financial contract that gives the owner the right to buy or sell some asset at a fixed price on or before a given date. The put-call parity is derived based on the principal of no arbitrage. That is, the put-call parity equation holds only when the market is reasonably good enough so that arbitrage opportunities are not allowed. Today Jim bought a call option and Jill wrote a call option. The options are exactly the same (with the same underlying asset, same exercise price, same expiration date, same in every aspect). When the underlying stock price changes, for every dollar Jim gains, Jill loses a dollar, and vice versa. In reality, stock option contracts are based on the unit of 100 shares and expire on the third Friday of the month. An out of the money option means that if you exercise the option now you will be able to get money out of it.
Pricing of ________ options tends to be more difficult due to embedded early exercise feature, while the exercise of _______ options is only allowed at expiration date
Define American option
the buyer of the option is not obliged to complete the deal and will do so only if changes in price make it profitable to do so True or Flase
Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
All of the following are reasons for engaging in swaptions, which one is not? a. Swaptions are utilized by parties who anticipate the need for a swap at a later date but want to lock in a set rate today while keeping the option of not engaging in the swap later or engaging in the swap at a better market rate.b. Swaptions are used by parties entering into a swap to give them the flexibility to terminate the swap.c. Swaptions are used by parties to speculate on interest rates.d. To create a stream of equivalent payments or annuity on the type of swaption.
a)analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate, volatility, and dividends. b) identify, analyze, and discuss the following characteristics of a European put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. c) analyze and discuss the following factors on a European put option: time to expiration, exercise price, interest rate, volatility, and dividends. d) discuss the relationship between American and European option prices. e) derive the put-call parity and discuss its implications. f) discuss the characteristics of a currency option.
[S1] An American option would be more valuable than a European option. [S2] When the price of the underlyingasset is greater than the exercise price of the option, then a call option would be more valuable than a putoption. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.
Determine, generally based on justification, in what manner does seller a put option set targeted?
Options have a unique set of terminology. Define the following terms: (12) Out-of-the-money call
Which option gives the right to sell an asset at any time prior to or at maturity? *A. European PutB. American PutC. American CallD. European Call
Which option gives the right to buy an asset any time prior or to maturity? *A. European CallB. American PutC. American CallD. European Put