Which of the Following Factors Would Tend to Increase the Size

question 34

Multiple Choice

Which of the following factors would tend to increase the size of the premium on an options contract?

• A)The option is near its expiration date.
• B)The current default-risk-free interest rate is high.
• C)The price volatility of the underlying asset is low.
• D)The option is far away from its expiration date.

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Definitions:

Long-Run Equilibrium

A state in which all factors of production are fully adjusted to the economic conditions, leading to a situation where there is no tendency for change.

Purely Competitive Firm

refers to a company that operates in a market where there are many buyers and sellers, no barriers to entry, and the product is a commodity, leading the firm to be a price taker.

Monopolistic Competition

An economic model featuring a multitude of firms that market products which are alike but not the same, enabling a certain amount of market control and differentiation of products.