The Value of a Call Option Is Negatively Related to the

question 19

Multiple Choice

The value of a call option is negatively related to the

• A)exercise price.
• B)risk-free rate.
• C)time to expiration.
• D)risk-free rate and time to expiration.

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Definitions:

Risk-averse

A characteristic of individuals who prefer to avoid taking risks and are likely to choose options that minimize uncertainty.

Probability

The determination of the possibility that an event will happen, quantified between 0 and 1.

Expected Utility

A theory in economics that calculates the utility of an entity based on the probabilistic outcomes of its choices.

Probability

A numerical expression between 0 and 1 that quantifies the probability of an event happening.