Derivatives - Derivatives Section 2
46. The value of a European option is least likely affected by:
- Option : C
- Explanation : The investor’s exposure to the option is not relevant to the price one should pay to buy or ask to sell the option.
47. Which of the following factors will least likely reduce the value of a European call option?
- Option : B
- Explanation : The higher the stock price and the lower the exercise price, the more valuable is the call.
- Option : A
- Explanation : Although the longer time benefits the holder of the option, it also has a cost in that exercise of a longer-term put comes much later. Therefore, the receipt of the exercise price is delayed.
- Option : B
- Explanation : Option 2 will most likely have the highest value because it has a longer time to expiration relative to Option 1 and a lower exercise price relative to Option 3.
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