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Which of the following statements is CORRECT?
a. Put options give investors the right to buy a stock at a certain strike
price before a specified date.
b. Call options give investors the right to sell a stock at a certain strike
price before a specified date.
c. Options typically sell for less than their exercise value.
d. LEAPS are very short-term options that were created relatively
recently and now trade in the market.
e. An option holder is not entitled to receive dividends unless he or she
exercises their option before the stock goes ex dividend.
2. Which of the following statements is CORRECT?
a. If the underlying stock does not pay a dividend, it makes good
economic sense to exercise a call option as soon as the stock’s price
exceeds the strike price by about 10%, because this permits the option
holder to lock in an immediate profit.
b. Call options generally sell at a price less than their exercise value.
c. If a stock becomes riskier (more volatile), call options on the stock are
likely to decline in value.