The Value of a Call Option Increases as the Time

question 30

Multiple Choice

The value of a call option increases as the time to expiration increases because:

• A) the exercise price continually decreases.
• B) the opportunity increases for the stock price to surpass the exercise price.
• C) the dividends accumulate while waiting to be paid.
• D)the option can be repeatedly exercised.

---

Definitions:

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a company is using its equity to generate profits.

Dividend Growth Rate

The annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time.

Earnings

The net profits of a company after all expenses have been deducted from revenues.

Earnings Reinvested

Profits that are not paid out as dividends but are instead reinvested in the business to fund growth or pay down debt.