- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 8. Factors that Affect the Value of an Option

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**CFA Practice Question**

The lower bound on a European call price is the greater of zero and ______.

B. the present value of the exercise price minus the underlying price

C. the underlying price minus the present value of the exercise price

A. the underlying price minus the exercise price

B. the present value of the exercise price minus the underlying price

C. the underlying price minus the present value of the exercise price

Correct Answer: C

European options cannot be exercised until maturity, so the exercise price is adjusted to reflect that the exercise price can be paid and the underlying received only at expiration.

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