Derivatives - Derivatives Section 2
41. At expiration, a European call option will be valuable if the exercise price is:
- Option : A
- Explanation : 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:
- Option : C
- Explanation : Both call and put option have time value that decays as the expiration approaches.
- Option : A
- Explanation : To calculate minimum value, the exercise price is adjusted for the time value of money.
- Option : B
- Explanation : 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:
- Option : B
- Explanation : As the expiration date approaches, the time value decreases and is zero at expiration.
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