As the volatility of the stock price increases, the time value of the option:
A)Decreases.
B)Is zero.
C)Increases.
D)Doesn't change.

Question

Quizplus · Accepted Answer

The time value of an option is influenced by factors such as time to expiration, interest rates, and volatility. As volatility increases, the likelihood of the option reaching its strike price also increases, which increases the chance of it being exercised. Therefore, the time value of the option increases with volatility.

As the Volatility of the Stock Price Increases, the Time