As the Variance of the Asset Price Decreases, the Value

question 34

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:

Tax Base

The assessed value of all taxable income, property, assets, or other items that a government can tax.

Income Tax

A tax levied by governments on individuals or entities based on their income or profits.

Saving Rate

The portion of income that is not spent on consumption but rather saved or invested.

Double Taxation

The imposition of taxes on the same income, assets, or financial transaction at two different levels of government, such as corporate income being taxed both to the corporation and to the shareholders when distributed as dividends.