Multiple Choice

2. The higher the call option premium, other things being equal, ______________ the maturity of the option.

shorter

longer

no impact

3. A call option is said to be _____________ when the market price of the underlying security exceeds the exercise price.

In-the-money

At-the-money

Out-of-the-money

None of the above

4. The ABC Company expects stock prices to decrease. The current stock price is $96. The company purchases a put option, with exercise price of $93 and a premium of $3 per share. Just before the expiration, stock price rises to $91. Should the investor exercise the put option or not? What will the total payoff per share be?

Do not exercise, total payoff = -$2 per share

Do not exercise, total payoff = -$1 per share

Exercise, total payoff = -$1 per share

Exercise, total payoff = $1 per share

Exercise, total payoff = $2 per share