Which of the following factors affect the price of a stock option
A)the risk-free rate.
B)the riskiness of the stock.
C)the time to expiration.
D)the expected rate of return on the stock.
E)A,B,and C.

Question

Quizplus · Accepted Answer

All three factors mentioned in choices A, B, and C are known to affect the price of a stock option. The risk-free rate reflects the cost of money used to buy the underlying asset, the riskiness of the underlying asset (in this case the stock) reflects the probability of a change in the value of the option, and time to expiration affects the probability of the event that determines the value of the option will occur. The expected rate of return on the stock also plays a role, but it is not as significant as the other factors.

Which of the Following Factors Affect the Price of a Stock