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    Market Value of a Call Option

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    Which of the following events are likely to increase the market value of a call option on a common stock. Explain.

    a) An increase in the stock's price.

    b) An increase in the volatility of the stock price.

    c) An increase in the risk-free rate.

    d)A decrease in the time until the option expires.

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    Solution Preview

    Please find my response below.

    a) The greater the stock price, the more is the value of the call option. Recall from the put-call parity equation:
    S+P=C+X/(1+r)^n

    Based on the above formula, more the value of S (Stock ...

    Solution Summary

    The solution answers the question below.

    $2.19

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