Which one of the following will cause the value of a call to decrease?
A)Lowering the exercise price
B)Increasing the time to expiration
C)Increasing the risk-free rate
D)Lowering the risk level of the underlying security
E)Increasing the stock price

Question

Quizplus · Accepted Answer

Lowering the risk level of the underlying security (also known as decreasing the volatility) will cause the value of a call option to decrease. This is because higher volatility increases the potential for the stock to move above the strike price, making the option more valuable. Lower volatility reduces this potential, thus decreasing the option's value.

Which One of the Following Will Cause the Value of a Call