Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The time value component of an option's price increases as the time to expiration increases. This is because there is a greater likelihood of the underlying asset moving in a favorable direction for the option holder with more time remaining until expiration. The other options listed are incorrect. Option A is incorrect because an increase in the exercise price would make the option less valuable. Option B is incorrect because higher volatility typically leads to higher option prices. Option D is incorrect because higher opportunity cost of funds would make holding onto the option more expensive, thereby reducing its value.

Which of the Following Statements Is Correct