Question

13.       An investor owns a call option with a strike price of $45, the premium paid was $4. The share price on the option expiration date is $42, which of the below statements is correct?

a.   The option should be allowed to lapse

b. The loss on the option is $7

c. The intrinsic value of the option is -$3

d. The profit on the option is $7

14.       In making a decision on how to act, the Institute of Business Ethics recommends three tests. What are they?

a. Transparency, Effect and Honesty

b. Honesty, Integrity and Transparency

c. Transparency, Effect and Fairness

d. Traceability, Effect and Fairness

Answer 1

13.The total loss= [premium on call option paid]= $4

Call option is right to exercise and it is not an obligation to exercise, so and the investor is making the loss on exercising of the option & he should allow the option to lapse and he will lose the premium paid in this case.

Correct answer is option (A) the option should be allowed to be lapsed.

14. institute of Business ethics requirement three test which would be transparency and effect as well as fairness.

Correct answer is option (C)