Which Two of the Following Have the Greatest Effect on Stock

question 65

Multiple Choice

Which two of the following have the greatest effect on stock option prices?
I. volatility of underlying stock price
II. time to option maturity
III. underlying stock price
IV. option strike price

• A)I and II only
• B)I and IV only
• C)II and III only
• D)II and IV only
• E)III and IV only

---

Definitions:

Risk Premiums

Additional returns expected by an investor for taking on additional risk, over and above the risk-free rate of return.

Multifactor APT

Multifactor Arbitrage Pricing Theory, a model that describes the relationship between risk and expected return with multiple factors.

Beta

An indicator of the level of fluctuation, or inherent risk, of an asset or collection of assets relative to the overall market.

Zero-Investment Portfolio

A portfolio of zero net value, established by buying and shorting component securities, usually in the context of an arbitrage strategy.