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A:
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A: volatility is the fluctuation in the price of the underlying asset.
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Explain with examples of how an option holder gains or losses from an increase in the volatility of the underlying stock price
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- How is the intrinsic value of the call option impacted as the stock price changes? How is the time value of the call option impacted as the stock price changes?Explain why common stock is itself like a call option. What plays the role of the exercise price and what plays the role of the underlying stock?What is relationship between the market risk of a stock and it's expected return?
- How is risk defined and measured? How might the magnitude of the market risk premium impact someone’s desire to buy stock?How do call and put options provide a leveraged way of investing in the stock market and enables investors to hedge their risk completely? How do the circumstances under which the addition of an option increase or decrease portfolio risk?Explain which has a stronger effect on stock prices, the change in the interest rate or the unexpected change.
- Indicate factors influencing the market price of a stock. Explain how changes in the factors will impact a stock's price fluctuations.What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceWhich of the following events are likely to increase the market value of a calloption on a common stock? Explain.a. An increase in the stock’s priceb. An increase in the volatility of the stock pricec. An increase in the risk-free rated. A decrease in the time until the option expires
- a. What is the relationship between the expected return of a stock and its fair expected return? When is a stock underpriced, overpriced, or fairly priced?Options and Stock Risk If the risk of a stock increases, what is likely to happen to the priceof call options on the stock? To the price of put options? Why?How to use call options and put options to create a synthetic short position in stock?