Question

Which of the following statements are true? There are several, select all that are correct. Consider each statement on its own separate from the others listed.

Question 7 options:

	A Call option gives its owner the right to buy a share off stock at fixed price within a specified period of time.
	The exercise value of an option is the payoff from immediately exercising the option minus the price paid for the option contract.
	An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.
	The possibility of increasing capacity at a plant is an example of a real option
	When the current stock price is below the the strike price, an option is said to be out-the- money.
	An American option can only be exercised on its expiration date

Answer 1

Solution: True statements are mentioned below along with the reasons

A Call option gives its owner the right to buy a share off stock at fixed price within a specified period of time.

Reason: Call option referees to the right( not mandatory or obligatory) to buy a share off the stock at fixed price within a specified period of time

When the current stock price is below the the strike price, an option is said to be out-the- money.

Reason: A call option is in-the-money if the strike price is below the market price of the underlying stock.

The possibility of increasing capacity at a plant is an example of a real option

Reason: The possibility of increasing capacity at a plant is an example of a real option. Real options refer to companies making decisions or choices that give them flexibility and potential benefits when making future choices.

The exercise value of an option is the payoff from immediately exercising the option minus the price paid for the option contract.

Reason:The difference between the exercise price and underlying security’s price determines if an option is “in the money” or “out of the money."