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Statements about moneyness of call and put options

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Reference no: EM131944738

1. Consider a standard capital budgeting project. Which of the following statements would indicate that this project’s NPV is equal to zero?

a. The present value of benefits is greater than the present value of costs

b. The profitability index is equal to one

c. The total sum of the benefits is equal to the total sum of the costs

d. The project’s IRR is equal to zero

e. The project has a short payback period

2. Which of the following statements about “moneyness” of call and put options is FALSE?

a. An option buyer would be advised to exercise any call or put option that is in-themoney and about to expire.

b. Option writers (also called sellers) must make payments to option buyers whenever the buyer exercises in-the-money options.

c. Put options are out-of-the-money when strike price < the underlying stock price.

d. Put options are at-the-money when strike price = the underlying stock price.

e. Call options are in-the-money when strike price > the underlying stock price.

Reference no: EM131944738

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