According to the Black/Scholes option valuation model, the value of a call option increases if
A)the option approaches expiration
B)the return on the stock is more certain
C)interest rates on a discounted bond decline
D)the standard deviation of the stock's return increases

Question

Quizplus · Accepted Answer

The Black/Scholes model suggests that the value of a call option increases with the volatility of the underlying stock, which is captured by the standard deviation of the stock's return. Higher volatility increases the potential for the stock to move above the strike price, making the option more valuable.

According to the Black/Scholes Option Valuation Model, the Value of a Call