What would be the value of an option on a stock that sells at a fixed price with a standard deviation of zero? Explain.
What will be an ideal response?
Absent intrinsic value in the option, a stock that has no volatility in its price has an option that will never pay off, so no one would have any interest in owning it and the option would be worthless and so would not exist. In order for options to have value, the price of the underlying asset must have some volatility to it (meaning a standard deviation greater than zero).
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Canada produces MP3 players and lumber, and the marginal costs for the two products are $200 per 1,000 board-feet of lumber and $100 per MP3 player
China also produces these goods, and the marginal costs are $300 per 1,000 board-feet of lumber and $100 per MP3 player. Which country has the comparative advantage in lumber production? A) Canada B) China C) Both countries share the comparative advantage. D) We need more information to answer this question.
The classical theory states that
a. demand is generally greater than supply. b. supply creates its own demand. c. supply is generally greater than demand. d. prices and interest rates are always stable.
The fiscal policy action most likely to increase consumer spending would be _____.
a. increasing the individual income tax rate b. decreasing the individual income tax rate c. increasing the business tax rate d. decreasing the business tax rate
Goodyear Tire and Rubber Company and the United Steelworkers recently
A. ended a bitter strike. B. went to arbitration to avert a strike. C. agreed to major concessions including a wage freeze, job cuts, plant upgrades, and limited imports. D. agreed to large pay increases tied to productivity gains.