Chapter 21 Option Valuation
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Multiple Choice Questions
1.
Before expiration, the time value of an in the money call 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.
Before expiration, the time value of an in the money put option is always
A)
equal to zero.
B)
negative.
C)
positive.
D)
equal to the stock price minus the exercise price.
E)
none of the above.
Answer: C Difficulty: Easy
Rationale: The difference between the actual option price and the intrinsic value is
called the time value of the option.
3.
Before expiration, the time value of an at the money call option is always
A)
positive.
B)
equal to zero.
C)
negative.
D)
equal to the stock price minus the exercise price.
E)
none of the above.
Answer: A Difficulty: Easy
Rationale: The difference between the actual option price and the intrinsic value is
called the time value of the option.