SIE practice questionmediumOptions - Time/Intrinsic Value Misrepresentation
A broker tells a client that an out-of-the-money option has significant intrinsic value to encourage a purchase. This statement is:
- ARequired by the SEC
- BPermitted if the client asks for it
- CSuitable for experienced investors
- DProhibited, as it misstates fundamental options facts✓ Correct answer
Explanation
Why D — Prohibited, as it misstates fundamental options facts
Misrepresenting option basics (like intrinsic vs. time value) is misleading and a prohibited sales practice. Suitability and SEC rules require accurate disclosure.
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