The value of a call option increases as the time to expiration increases because:
A)The exercise price continually decreases
B)Opportunity increases to surpass exercise price
C)Dividends accumulate while waiting to be paid
D)The option can be repeatedly exercised

Question

Quizplus · Accepted Answer

As time passes, there are more opportunities for the underlying asset to increase in value and potentially exceed the exercise price, increasing the value of the call option. The other choices are incorrect: A is incorrect because the exercise price is fixed, C is incorrect because dividends do not necessarily accumulate during the life of the option, and D is incorrect because call options can only be exercised once.

The Value of a Call Option Increases as the Time