Asked by Aditya Venkat on Jul 08, 2024
Verified
The value of a call option increases with all of the following except ________.
A) stock price
B) time to maturity
C) volatility
D) dividend yield
Dividend Yield
A financial metric indicating the annual dividend payment of a company as a proportion of its stock price.
Volatility
A statistical measure of the dispersion of returns for a given security or market index, typically used as a measure of risk.
Time to Maturity
The remaining time until a financial instrument, like a bond, reaches its repayment date.
- Identify factors that influence the value of call and put options.
Verified Answer
RH
Roger HindrichJul 11, 2024
Final Answer :
D
Explanation :
A call option gives the holder the right to buy the underlying asset at a specified price, known as the strike price. The value of the call option is influenced by several factors, including the current stock price, time to maturity, volatility, and dividend yield. As the stock price increases, the value of the call option increases because there is a higher chance of the underlying asset exceeding the strike price. Similarly, as the time to maturity increases, the value of the call option increases because there is more time for the stock price to rise above the strike price. Volatility also increases the value of the call option because it makes it more likely that the underlying asset will experience significant price movements in the future. However, dividend yield decreases the value of the call option because it reduces the underlying asset's future stock price. Therefore, the correct option is (D) dividend yield.
Learning Objectives
- Identify factors that influence the value of call and put options.