Which of the following features increase(s) the value of a call option?
A)A high interest rate
B)A long time to maturity
C)A higher volatility of the underlying stock price
D)A high interest rate, a long time to maturity, and a higher volatility of the underlying stock price

Question

Quizplus · Accepted Answer

All three features - high interest rate, long time to maturity, and higher volatility of the underlying stock price increase the value of a call option.

Higher interest rates increase the present value of the option's strike price, making it more expensive to buy the stock at the strike price. A longer time to maturity gives the stock price more time to move in the favor of the call option buyer, increasing the chances of the option being in the money. Finally, higher volatility of the underlying stock price increases the likelihood of the stock price moving in the favor of the call option buyer, making the option more valuable.

Which of the Following Features Increase(s) the Value of a Call