Asked by Cassi Crews on Jun 25, 2024
Verified
C1 = (S1- E) if (S1- E) < 0 identifies the value of a call option at expiration.
Call Option
A financial contract giving the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time.
Expiration
The end of the effective period of a contract, policy, or agreement, often referring to options, futures, or insurance contracts.
- Identify the determinants affecting options' value at maturity.
Verified Answer
NS
Natalie SalcedoJun 30, 2024
Final Answer :
False
Explanation :
The correct formula for the value of a call option at expiration is max(S - E, 0), where S is the stock price at expiration and E is the strike price. The expression given, C1 = (S1- E) if (S1- E) < 0, incorrectly suggests the value is determined directly by a negative outcome, which contradicts the principle that a call option's value cannot be negative; it is either the difference between the stock price and the strike price if positive, or zero.
Learning Objectives
- Identify the determinants affecting options' value at maturity.