According to the Black/Scholes Option Valuationmodel, a Call Option's Value

question 4

Multiple Choice

According to the Black/Scholes option valuationmodel, a call option's value decreases if

• A) interest rates increase as the option approaches expiration
• B) the variability of the stock's return declines and the interest rate decreases
• C) an increase in the price of the stock results in a two for one stock split
• D the option is exercised

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Definitions:

Unrealized Loss

A decrease in the value of an investment or asset that has not been sold, hence the loss has not been realized.

Fair Value Adjustment

A correction made to the reported value of an asset or liability to align it with its market value.

Discounted Note

A debt instrument that is sold or issued for less than its face value and whose return comes from the difference between the purchase price and the face value paid at maturity.

Proceeds

The amount of money received from a transaction, often used in the context of sales or the disposition of assets.