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.

Question

Quizplus · Accepted Answer

The value of a call option is positively related to the market interest rate, not negatively. Higher interest rates increase the cost of carrying the underlying asset, which can increase the value of call options.

In the Valuation of an Option Contract,the Following Statements Apply