Please explain : For a European call option X=25 and a European call option X=30 on the same stock with the same time to expiration, the strongest statement we can make is the: A) 25 call is worth more than the 30 call. B) 30 call is worth more than the 25 call. C) 25 call is worth at least as much as the 30 call. D) 30 call is worth at least as much as the 25 call. For two European call options that differ only in time to expiration, the strongest statement we can make is that: A) the longer-term option must be worth at least as much as the shorter-term option. B) the longer-term option must be worth more than the shorter-term option. C) the longer-term option must be worth less than the shorter-term option. D) no relation can be established between the values of the two calls prior to expiration of the first. Thanks S

A and B

Saurya consider the following relations: C= (S ; K; T; V; r; D) (+ ; -; +/-; + ;+; -) P= (S; K; T; V; r; D) (-; +; +/-; +; -; +) Where: S= underlying asset K= Strike T= time to expiration V= volatility r= risk free rate D= dividend The +/- refers to positive and negative relationship with the price of the option should be C

I’m guessing B and D B because the same stock and time , the higher dollar amount is worth more? D European options, there are cases the shorter term is more valuable than the longer term.

I would go with C for both.

saurya_s can we have the answer?

C and A

C and A

The answers are C and A respectively. I was wondering why it is not A and B respectively. Strangedays can you elaborate on relation with time where you say +/-. Seems you have done Black Scholes. Thanks S

A and A is my vote

saurya_s, pls provide the solution.

C&A vs. A&B The answers are quite similar, only the included value equality is different

saurya_s, have a look at the link below…basically, it is all based on the function of “the greeks”. http://www.investopedia.com/articles/optioninvestor/02/120602.asp I hope this helps! P. S. Anyway the most correct (in terms on accurancy) its C.

the explanation is the formula for the minimum value of a call max [0,S - X / (1+rfr)^T-t] question 1, X is less at 25, but could be 0 question 2, T-t is greater for the longer maturity, but could be 0

True or false a) An option that pays you $0.01 if a stock has a price > 25 and < 30 may be utterly completely worthless b) Stock A goed ex-dividend on May 1 paying a $30/share dividend. Stock A is currently selling at $31/share. An April 30 $20 European call is worth less than a May 30 call. Edit: The real answers are A and D.

Joey, can you clarify why it is A better than C (for the first answer). thanks

@ Joey A is ok But D is right if you consider dividends. If you don’t consider them (my standard assumption for Level I) B would be ok.

Joey is most likely right and the prepprovider wrong. (no sarcasm)

C and A vote here.

my answer is A and C. C beacuse you can exercise it earlier than the longer term one. can some one explain why Joey says the second answer is D?