# This flashcard is just one of a free flashcard set. See all flashcards!

210

10.Which of the following is true for a call option on a stock worth $50

A.As a stock’s expected return increases the price of the option increases

B.As a stock’s expected return increases the price of the option decreases

C.As a stock’s expected return increases the price of the option might increase or decrease

D.As a stock’s expected return increases the price of the option on the stock stays the same

A.As a stock’s expected return increases the price of the option increases

B.As a stock’s expected return increases the price of the option decreases

C.As a stock’s expected return increases the price of the option might increase or decrease

D.As a stock’s expected return increases the price of the option on the stock stays the same

Answer: D

The option price when expressed in terms of the underlying stock price is independent of the return on the stock. To put this another way, everything relevant about the expected return is incorporated in the stock price.

The option price when expressed in terms of the underlying stock price is independent of the return on the stock. To put this another way, everything relevant about the expected return is incorporated in the stock price.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015