1. Which of the following statements is true?
a. A put option is more valuable when the underlying stock price increases
b. A call option is more valuable when the time to expiration is greater
c. A call option is more valuable when the underlying stock price decreases.
d. A put's exercise value is the negative of a call's exercise value.
e. A put's price is the negative of a call's price.
3. Consider the following situation: HSB stock is trading for $23. An American call option on the stock has an exercise price of $25 and 1 year to maturity. Which of the following statements is true?
a. The option can be exercised any time before the expiration date
b. The option is in the money
c. The option should have a market price of $0
d. The option should have a market price of $2
e. The option's time value is $2
3. Which of the following statements is false?
a. A put option is more valuable when the underlying stock price decreases
b. A put option's value moves opposite to that of the underlying stock
c. Calls are more valuable and puts are less valuable when the underlying stock is riskier
d. A call option is more valuable when the time to expiration is greater
e. A call option's value moves in the same direction as that of the underlying stock