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 generally increases with the market interest rate, contrary to the statement in option B. Higher interest rates decrease the present value of the exercise price paid at expiration, making the option more valuable.

In the Valuation of an Option Contract, the Following Statements