Which one of the following statements is correct?
A) The value of a call option decreases as the time to expiration increases.
B) A decrease in the risk-free rate decreases the value of a put option.
C) Increasing the risk-free rate decreases the value of a call option.
D) The value of a put option increases when the standard deviation of the returns on the underlying stock increase.
E) Increasing the strike price decreases the value of a put option.

Question

Quizplus · Accepted Answer

The value of a put option increases when the standard deviation of the returns on the underlying stock increases because higher volatility increases the probability that the option will end up in the money, thus increasing its value.

Which One of the Following Statements Is Correct