At a single time, a stocks price is $10 and the premium for a call option on the stock is $3 The strike price on the option is $8 How should you explain the additional value of the premium over the difference between strike price and stock price The stock price and option price may have been quoted at different times when stock values were different The market value of the option premium equals the difference between the strike price and the market value of the stock The market value of the option premium equals the difference between the stock market value and the strike price plus a time premium The hypothetical price of the option is less than the time premium Which of the following strategies offers the greatest potential to maximize rate of return on a stock if the stock price rises after you implement the strategy A Purchaseastockandsupplementyourreturnbypurchasingacalloptiononthestock B Assume a naked position in the stock with a call option C Write a covered put on the stock D Write a naked put on the stock You speculate that the value of a stock wont drop, and youre unwilling to purchase the stock or pay a premium for an option What position would you take to profit by the stocks price not dropping A Write a put C Write a call B Purchase a call D Employ a covered position Although arbitrage presents potential profit opportunities, the likelihood of individual investors finding arbitrage opportunities is limited by the tendency for stock values to fall away from the efficient frontier hedge strategies that combine option and stock purchases all but eliminate arbitrage opportunities stock and option exchange managers, who are required to notify market makers when arbitrage opportunities present themselves market makers, who are in a better position to detect and quickly capitalize before gaps narrow You know that leverage increases risk because A leverage increases the opportunity for greater profits and losses B when you lend money to businesses, you increase your exposure to default risk C leverage magnifies the potential return on an investment D leverage brings with it downside risk caused by the time limited feature of options

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At a single time, a stocks price is $10 and the premium for a call option on the stock is $3. The strike price on

At a single time, a stocks price is $10 and the premium for a call option on the stock is $3. The strike price on the option is $8. How should you explain the additional value of the premium over the difference between strike price and stock price?
1. The stock price and option price may have been quoted at different times when stock values were different.
2. The market value of the option premium equals the difference between the strike price and the market value of the stock.
3. The market value of the option premium equals the difference between the stock market value and the strike price plus a time premium.
4. The hypothetical price of the option is less than the time premium.
Which of the following strategies offers the greatest potential to maximize rate of return on

a stock if the stock price rises after you implement the strategy?

A. Purchaseastockandsupplementyourreturnbypurchasingacalloptiononthestock. B. Assume a naked position in the stock with a call option. C. Write a covered put on the stock. D. Write a naked put on the stock.
You speculate that the value of a stock wont drop, and youre unwilling to purchase the stock or pay a premium for an option. What position would you take to profit by the stocks price not dropping?

A. Write a put. C. Write a call. B. Purchase a call. D. Employ a covered position.
Although arbitrage presents potential profit opportunities, the likelihood of individual investors finding arbitrage opportunities is limited by
1. the tendency for stock values to fall away from the efficient frontier.
2. hedge strategies that combine option and stock purchases all but eliminate
  
  arbitrage opportunities.
3. stock and option exchange managers, who are required to notify market makers when
  
  arbitrage opportunities present themselves.
4. market makers, who are in a better position to detect and quickly capitalize before gaps
  
  narrow.
You know that leverage increases risk because

A. leverage increases the opportunity for greater profits and losses. B. when you lend money to businesses, you increase your exposure to default risk. C. leverage magnifies the potential return on an investment. D. leverage brings with it downside risk caused by the time-limited feature of options.