CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

Which of the following statements about options and their underlying assets is FALSE?

A. The value of an option, in comparison to its underlying asset, has the potential of creating an arbitrage opportunity.
B. The owner of the option is legally required to engage in a transaction involving the asset.
C. The holder of a long position on an option is the only party with the right to initiate a transaction involving the asset.
Correct Answer: B

The option writer is required to honor the terms of the contract if called upon by the buyer to do so. The option buyer has the discretion to exercise the contract or not.

User Contributed Comments 4

User Comment
cgalarzac Am I supposed to know the answer just by this reading?
fabsan Same here
Olesya_CFA these notes are supposed to supplement the main CFA readings or your experience. They are not sufficient for understanding all of the topics. I took a three months class to understand how options work.
Fabulous1 Read the Derivatives Section first, then it will be easier if you have no prior knowledge of this topic
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