PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 20, Problem 22PS
Option values* How does the price of a call option respond to the following changes, other things equal? Does the call price go up or down?
- a. Stock price increases.
- b. Exercise price is increased.
- c. Risk-free rate increases.
- d. Expiration date of the option is extended.
- e. Volatility of the stock price falls.
- f. Time passes, so the option’s expiration date comes closer.
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Students have asked these similar questions
If the stock price increases, the price of a put option on that stock ________ and that of a call option _________.
decreases, increases
decreases, decreases
increases, decreases
increases, increases
An increase in the volatility of returns of the underlying stock (and holding everything else constant):
A. Decreases both call and put option values
B. Increases both call and put option values
C. Increases put option values but not call option values
D. Decreases call option values but not put option values
E. Increases call option values but not put option values
Which of the following statements true?
A call option price is increasing in stock return volatility
A put option price is decreasing in stock return volatility
I.
II.
A) I. and II. are true
B) I. is true and II. is false
C) II. is true and I. is false
D) I. and II. are false
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Chapter 20 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 20 - Vocabulary Complete the following passage: A _____...Ch. 20 - Option payoffs Note Figure 20.12 below. Match each...Ch. 20 - Option payoffs Look again at Figure 20.12. It...Ch. 20 - Option payoffs What is a call option worth at...Ch. 20 - Option payoffs The buyer of the call and the...Ch. 20 - Option combinations Suppose that you hold a share...Ch. 20 - Option combinations Dr. Livingstone 1. Presume...Ch. 20 - Option combinations Suppose you buy a one-year...Ch. 20 - Option combinations Suppose that Mr. Colleoni...Ch. 20 - Option combinations Option traders often refer to...
Ch. 20 - Prob. 11PSCh. 20 - Option combinations Discuss briefly the risks and...Ch. 20 - Put-call parity A European call and put option...Ch. 20 - Putcall parity a. If you cant sell a share short,...Ch. 20 - Putcall parity The common stock of Triangular File...Ch. 20 - Put-call parity What is put-call parity and why...Ch. 20 - Putcall parity There is another strategy involving...Ch. 20 - Putcall parity It is possible to buy three-month...Ch. 20 - Putcall parity In April 2017, Facebooks stock...Ch. 20 - Option bounds Pintails stock price is currently...Ch. 20 - Option values How does the price of a call option...Ch. 20 - Option values Respond to the following statements....Ch. 20 - Option values FX Bank has succeeded in hiring ace...Ch. 20 - Option values Is it more valuable to own an option...Ch. 20 - Option values Youve just completed a month-long...Ch. 20 - Option values Table 20.4 lists some prices of...Ch. 20 - Option bounds Problem 21 considered an arbitrage...Ch. 20 - Prob. 30PSCh. 20 - Prob. 31PSCh. 20 - Prob. 32PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Describe the effect of a change in each of the following factors on the value of a calloption:1. Stock price2. Exercise price3. Option life4. Risk-free ratearrow_forwardOption Price and Interest Rates Suppose the interest rate on T-bills suddenly andunexpectedly rises. All other things being the same, what is the impact on call option values? Onput option values?arrow_forwardThe value of an option at expiration is its _______. a. time value b. strike price c. premium d. intrinsic value Please answer fast i give you upvote.arrow_forward
- A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?arrow_forwardWhich of the following positions in options benefit if the underlying stock price increases? Assume the options have several months remaining until the exercise date. a. Short position in call and long position in put b. Short position in both call and put c. Long position in a put d. Long position in call and short position in put e. Short position in a call f. Short position in a put g. Long position in a callarrow_forwardWhat effect does Stock Price have on call option price? What effect does Time expiration have on call option price? What effect does Risk-free rate have on call option price? What effect does Standard Deviation of Stock returns have on call option price?arrow_forward
- Which of the following describes delta? O The ratio of the option price to the stock price None of these O The ratio of a change in the option price to the corresponding change in the stock price The ratio of a change in the stock price to the corresponding change in the option price O The ratio of the stock price to the option price ◄ Previous Next ▸arrow_forwardAssume the price, S, of a non-dividend paying stock follows geometric Brownian motion with drift r and volatility o. Consider a perpetual call option on S. The option is exercised when S = Ŝ, and the payoff on the option is Ŝ– X, where X is the exercise price of the option. Assume all investors are risk-neutral and the instantaneous risk-free rate of interest is a constant, r. Note that the drift of the stock the instantaneous rate of return on the stock-is equal to r. Of course, this makes sense, since the return on all traded assets in a risk-neutral world must be the risk-free rate of interest. Compute the value of the call option C(S;$) and the optimal exercise policy S = arg max[C(S; $)].arrow_forward4c) State the effect, if any, of each of the following three variables on the value of a call option. (No calculations required.) i. An increase in the short-term interest rate. ii. An increase in stock price volatility. iii. A decrease in time to option expiration.arrow_forward
- Describe the effect of a change in each of the following factorson the value of a call option: (1) stock price, (2) exercise price,(3) option life, (4) risk-free rate, and (5) stock return standarddeviation (i.e., risk of stock).arrow_forwardIn the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike pricearrow_forwardIf the time to expiration falls and the put price rises, then what has happened to the put option’s implied volatility?arrow_forward
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