Which of the following factors affect the price of a stock option?
A) The risk-free rate
B) The riskiness of the stock
C) The time to expiration
D) The expected rate of return on the stock
E) The risk-free rate, riskiness of the stock, and time to expiration

Question

Quizplus · Accepted Answer

The price of a stock option is influenced by the risk-free rate, the riskiness of the stock, and the time to expiration. These factors are part of the Black-Scholes model, a fundamental framework for pricing options. The expected rate of return on the stock is not directly a factor in option pricing models like Black-Scholes, which instead use the risk-free rate and the stock's volatility.

Which of the Following Factors Affect the Price of a Stock