Question

Question 30 3 pts Assume an initial underlying stock price of $20, an exercise price of $20, a time to expiration of 3 months, a risk free rate of 12% and a underlying stock return variance of 16%. If the underlying stock return variance decreased to 14% and assuming other variables are held constant, the call option value would O increase remain the same decrease O indeterminate from the information given

Answer 1

Answer = C) DECREASE

The higher the variance in the value of the underlying asset, the greater the value of the option and viceversa

if the Variance of underlying stock decrease from 16% to 14%, the value of call option will decrease