Answer to Question #163452 in Economics for Ackeia McLaren

Question

Describe the effect on a call option’s price caused by an increase in each of the following

factors:

 

(1) stock price

(2) exercise price

(3) time to expiration,

(4) riskfree rate

(5) variance of stock return.

Answer 1

(1) the share price increases;

(2) the strike price gives a decrease;

(3) the time before expiration increases the option price;

(4) the risk-free rate gives an increase;

(5) the variance of stock returns is not affected.