As the Variance of the Asset Price Decreases, the Value

question 247

Multiple Choice

As the variance of the asset price decreases, the value of a call option decreases because:

• A) Downside risk is virtually eliminated.
• B) The possible payoffs increase.
• C) Downside risk is virtually eliminated while the possible payoffs increase.
• D) Downside risk doesn't change but the possible payoffs decrease.
• E) It becomes more likely that the option will finish out of the money.

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Definitions:

Free Trade

An economic policy that allows goods and services to be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

Job Creation

The process by which new employment opportunities are generated, often considered a key indicator of economic health.

Protection

An alternative term for trade protection; policies that limit imports.

Foreign Trade

Involves the exchange of goods and services between countries, can be through importing or exporting.