Consider a One-Year, At-The-Money Call Option on Taggart Stock

question 37

Multiple Choice

Consider a one-year, at-the-money call option on Taggart stock. The effect on the price of this call option of an increase in the risk-free rate from 4% to 6% is closest to:

• A) $0.50 decrease
• B) $0.50 increase
• C) $0.70 decrease
• D) $0.80 increase

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Definitions:

Citrus Juice

The liquid extract from citrus fruits like oranges, lemons, and grapefruits, rich in vitamins and often consumed for its health benefits.

Salad Dressing

A mixture of ingredients like oil, vinegar, herbs, and seasonings applied to salads to enhance their flavor.

Quarter's Profit

The net income or earnings generated by a company during a specific quarter of its fiscal year.

Partnership

An authorized commercial operation formed by two or more participants who equally handle management duties and share the profits.