1. Because of the time value of money, the longer before an option expires, the more valuable the option will be, other things held constant.

True

False

2. As the price of a stock rises above the strike price, the value investors are willing to pay for a call option increases because both (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have both increased.

True

False

3. An option is a contract that gives its holder an obligation to buy or sell an asset at a predetermined price within a specified period of time.

True

False