All Else Equal, If the Volatility (Variance)of the Underlying Stock

question 75

Multiple Choice

All else equal, if the volatility (variance) of the underlying stock increases, then the

• A)value of a put option increases and that of a call option decreases.
• B)value of a put option decreases and that of a call option increases.
• C)value of both a put option and a call option increase.
• D)value of both a put option and a call option decrease.

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Definitions:

Buyers

Individuals or organizations that purchase goods or services for personal use, resale, or production.

Deductibles

The amount an insured person is required to pay out-of-pocket before an insurance company will cover the remaining costs.

Moral Hazard

The situation where one party is likely to take risks because the negative consequences of the risk will be borne by another party.

Fire Insurance

A type of property insurance that covers damage and losses caused by fire, providing financial protection to property owners.