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As the Variance of the Asset Price Decreases, the Value

Question 316

Multiple Choice

As the variance of the asset price decreases, the value of a call option decreases because:


A) Downside risk is virtually eliminated.
B) The possible payoffs increase.
C) Downside risk is virtually eliminated while the possible payoffs increase.
D) Downside risk doesn't change but the possible payoffs decrease.
E) It becomes more likely that the option will finish out of the money.

Correct Answer:

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