Derivatives MCQ - Derivatives Section 2

41 At expiration, a European call option will be valuable if the exercise price is:

A European call option will be valuable at expiration if the exercise price is less than the underlying price.

42 Due to time value decay, as we move closer to expiration:

Both call and put option have time value that decays as the expiration approaches.

43 Analyst 1: For options, the minimum value is the greater of zero or the difference between the underlying price and the present value of the exercise price, whereas the exercise value is the maximum of zero and the appropriate difference between the underlying price and the exercise price.
Analyst 2: For options, the exercise value is the greater of zero or the difference between the underlying price and the present value of the exercise price, whereas the minimum value is the maximum of zero and the appropriate difference between the underlying price and the exercise price.
Which analyst’s statement is most likely correct?

To calculate minimum value, the exercise price is adjusted for the time value of money.

44 Which of the following is most likely to be the maximum price of a European put option at time, t?

The maximum price of a European put option is the present value of the exercise price of the option. The price of the underlying stock at time, t, is the maximum value for a European Call option. The exercise price of the option is the maximum value for an American put option.

45 As the expiration date approaches, the time value of an option:

As the expiration date approaches, the time value decreases and is zero at expiration.