An increase in which of the following will increase the value of a call?
I.time to expiration
II.underlying stock price
III.risk-free rate of return
IV.price volatility of the underlying stock

Question

Quizplus · Accepted Answer

The value of a call option increases with more time to expiration (I) because there's more opportunity for the stock to rise above the strike price. A higher underlying stock price (II) directly increases the intrinsic value of a call. A higher risk-free rate of return (III) makes the present value of the exercise price lower, increasing the call's value. Increased price volatility (IV) of the underlying stock raises the probability of the stock price exceeding the strike price, thus increasing the call's value.

An Increase in Which of the Following Will Increase the Value