In the Valuation of an Option Contract, the Following Statements

question 85

Multiple Choice

In the valuation of an option contract, the following statements apply EXCEPT:

• A) The value of an option increases with its maturity.
• B) There is a negative relationship between the market interest rate and the value of a call option.
• C) The value of a call option is negatively related to its exercise price.
• D) The value of a call option is positively related to the volatility of the underlying asset.
• E) The value of a call option is positively related to the price of the underlying stock.

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Definitions:

Analogy

A comparison between two things, typically for the purpose of explanation or clarification.

Natural Selection

A key mechanism of evolution where individuals with traits better suited to their environment are more likely to survive and reproduce, leading to genetic changes in populations over time.

Reproductive Success

The passing of genes onto the next generation in a way that they too can pass those genes on.

Linnaeus

Carl Linnaeus, an 18th-century Swedish botanist, physician, and zoologist who developed a system for naming, ranking, and classifying organisms.