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Chap021 - Chapter 21 Option Valuation Multiple Choice...

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Chapter 21 Option Valuation Multiple Choice Questions 1. Before expiration, the time value of an in the money stock option is always A) equal to zero. B) positive. C) negative. D) equal to the stock price minus the exercise price. E) none of the above. Answer: B Difficulty: Easy Rationale: The difference between the actual option price and the intrinsic value is called the time value of the option. 2. A stock option has an intrinsic value of zero if the option is 3. Prior to expiration 500 Bodie, Investments, Sixth Edition
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Chapter 21 Option Valuation 4. If the stock price increases, the price of a put option on that stock __________ and that of a call option __________. 5. Other things equal, the price of a stock call option is positively correlated with the following factors except A) the stock price. B) the time to expiration. C) the stock volatility. D) the exercise price. E) none of the above. Answer: D Difficulty: Moderate Rationale: The exercise price is negatively correlated with the call option price. 6. The price of a stock put option is __________ correlated with the stock price and __________ correlated with the striking price. 501 Bodie, Investments, Sixth Edition
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Chapter 21 Option Valuation
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