Question
Which of the following statements is correct? a. A firms equity is similar to a call option with the value of the preferred stock being
Which of the following statements is correct?
a. A firms equity is similar to a call option with the value of the preferred stock being the strike price.
b. Someone who buys a straddle position is anticipating that the stock will experience significant price changes.
c. Buying a put can be considered to be a form of life insurance.
d. Price volatility is not a major factor in valuing options.
e. The maximum value a long put can take is the stock price.
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Which of the following statements is not correct?
a. The binomial option pricing model when taken to the limit becomes the Black-Scholes option pricing model.
b. The Black-Scholes model uses a continuous time discount factor.
c. The binomial option pricing model use a ratio of the range values as the hedge ratio.
d. The Black-Scholes model is related to a heat transfer equation and Brownian molecular motion.
e. The Black Scholes model only estimates the intrinsic value of the call option.
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Which of the following statements is not correct?
a. Being short a call requires the obligation to sell a stock at a certain price.
b. Buying a put gives you the right to sell a stock at a certain price.
c. Options can never be worth less than zero.
d. Selling a put gives you the right to buy a stock at a certain price.
e. Being long a call gives you the right to buy a stock at the exercise price.
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