Asked by Jill Colleen Argame on May 05, 2024
Verified
Which one of the following variables influences the value of call options?I) Level of interest ratesII) Time to expiration of the optionIII) Dividend yield of underlying stockIV) Stock price volatility
A) I and IV only
B) II and III only
C) I, II, and IV only
D) I, II, III, and IV
E) I, II, and III only
Dividend Yield
A financial ratio that indicates how much a company pays out in dividends each year relative to its stock price.
Volatility
Refers to the degree of variation of a trading price series over time, indicating the level of uncertainty or risk associated with a security's value.
- Investigate the influence of various determinants (e.g., policies on dividends, the level of interest rates, expiration timeline, and volatility in stock prices) on the market value of call and put options.
Verified Answer
MC
Mercedes CrumbleyMay 06, 2024
Final Answer :
D
Explanation :
All four variables influence the value of call options. The level of interest rates affects the cost of carrying positions, time to expiration impacts the potential for the stock to move, dividend yield influences the underlying stock's value, and stock price volatility affects the likelihood of the option ending in the money.
Learning Objectives
- Investigate the influence of various determinants (e.g., policies on dividends, the level of interest rates, expiration timeline, and volatility in stock prices) on the market value of call and put options.
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