The value of a call increases when: I.the time to expiration increases.
II)the share price increases.
III)the risk-free rate of return increases.
IV)the volatility of the price of the underlying share increases.

Question

Quizplus · Accepted Answer

All four statements are true.

I) As time to expiration increases, the likelihood of the underlying stock price moving in a favorable direction also increases, leading to a higher value for a call option.

II) As the share price increases, the call option becomes more valuable as the holder can "buy low and sell high."

III) A higher risk-free rate of return means that the holder can earn a higher return by investing in risk-free assets, making the call option more valuable.

IV) Higher volatility in the underlying share price means that there is a greater likelihood of the price moving in a favorable direction, making the call option more valuable.

The Value of a Call Increases When: I