Explain how and why an increase in each of the following affects the prices of both call and put options, holding all other variables constant: i. The current stock price ii. The strike price
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
a. Explain how and why an increase in each of the following affects the prices of both call and put
options, holding all other variables constant:
i. The current stock price
ii. The strike price
Step by step
Solved in 2 steps
