Which One of the Following Will Cause the Value of a Call

question 72

Multiple Choice

Which one of the following will cause the value of a call to decrease?

• A) lowering the exercise price
• B) increasing the time to expiration
• C) increasing the risk-free rate
• D) lowering the risk level of the underlying security
• E) increasing the stock price

---

Definitions:

Transaction Costs

Transaction costs are the expenses incurred in buying or selling goods or services, which can include search and information costs, bargaining costs, and enforcement costs.

Optimal Pigouvian Tax

A tax designed to correct the inefficiencies in a market that experiences externalities, set at a level that equates the marginal social cost of the externality with the marginal social benefit.

Socially Optimal

Pertains to a condition where resources are allocated in the most efficient manner from the perspective of society as a whole.

Pollution

The presence or introduction of harmful substances or contaminants into the natural environment, causing adverse effects.