The Value of a Call Option Increases as the Time

question 4

Multiple Choice

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

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

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Definitions:

Discount Bonds

Bonds sold for less than their face value, offering investors the difference as profit upon maturity.

BBB Credit Rating

This is a credit score indicating that the borrower has a good credit standing, typically associated with medium-grade investment securities with a moderate risk of default.

B Credit Rating

A rating denoting a relatively high risk level for investors or lenders, indicating that the entity has significant credit risk but is not in default.

Treasury Yield Curve

A graphical representation showing the yields on U.S. Treasury securities at fixed maturities, indicating the relationship between interest rates and the length of time to maturity.