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Which of the following is NOT true? A. When a CBOE call option on IBM is exercised, IBM issues more stock. B. An American option can be exercised at any time during its life. C. A call option will always be exercised at maturity if the underlying asset price is greater than the strike price. D. A put option will always be exercised at maturity if the strike price is greater than the underlying asset price.

Question

Which of the following is NOT true?

A. When a CBOE call option on IBM is exercised, IBM issues more stock.

B. An American option can be exercised at any time during its life.

C. A call option will always be exercised at maturity if the underlying asset price is greater than the strike price.

D. A put option will always be exercised at maturity if the strike price is greater than the underlying asset price.

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Solution

The correct answer is:

A. When a CBOE call option on IBM is exercised, IBM issues more stock.

Here's the reasoning behind this choice:

A. This is not true. When a call option is exercised, the holder of the option buys the shares from the option writer (or seller). The company itself, IBM in this case, does not issue more stock. The shares are transferred from the seller to the buyer.

B. This is true. An American option can be exercised at any time during its life, up to and including the expiration date.

C. This is true. A call option will always be exercised at maturity if the underlying asset price is greater than the strike price because it allows the holder to buy the asset at a price lower than the market price.

D. This is true. A put option will always be exercised at maturity if the strike price is greater than the underlying asset price because it allows the holder to sell the asset at a price higher than the market price.

This problem has been solved

Similar Questions

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At maturity, the buyer of a put option must pay the exercise price to the option seller. Select one: True False

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