The Greater the Volatility of the Underlying Stock, the ____

question 27

Multiple Choice

The greater the volatility of the underlying stock, the ____ the call option premium and the ____ the put option premium. ​

• A)higher; lower
• B)lower; higher
• C)higher; higher
• D)lower; lower

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Definitions:

Probability

A measure of the likelihood of a particular event or outcome occurring, expressed as a number between 0 and 1.

Six-Sided Die

A six-sided die is a cube-shaped object used in gaming, with each side marked with one to six dots to represent values for random outcomes.

Expected Utility

A concept in economics and finance that represents the average outcome when individuals are faced with uncertain decisions, often used in the context of risk and decision making.

Warranties

Guarantees provided by the seller or manufacturer, asserting that a product will meet specified criteria of performance over a certain period, and offering remedies in case of failure.