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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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 ...
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