There are call options on the common stock of XYZ Corporation.Which of the following best describes the factors that affect call option values?
A) The price of call options will rise if XYZ's stock price rises.
B) The higher the strike price,the higher the call option price.
C) Assuming the same strike price,a call option that expires in 1 month will sell for a higher price than one that expires in 3 months.
D) The less volatile a stock's price,the more valuable a call option on the stock is.
E) If the risk-free rate of interest increases,the value of call options will decrease.

Question

Quizplus · Accepted Answer

EA) The price of call options increases with the underlying stock's price because the option becomes more valuable as the potential for profit increases.E) If the risk-free rate of interest increases, the value of call options actually increases. This is because the present value of the exercise price decreases, making the option more attractive. The statement in E is incorrect as stated, but it's a factor that affects call option values inversely to what was described.

There Are Call Options on the Common Stock of XYZ