. Briefly explain why you would pay more for a European call option on a (non-dividend paying) stock which has an annual return volatility of 50% than for a European call on a (non-dividend paying) stock that has annual volatility of 10% (assuming that all other variables that affect option prices are the same for the two options.)
. Briefly explain why you would pay more for a European call option on a (non-dividend paying) stock which has an annual return volatility of 50% than for a European call on a (non-dividend paying) stock that has annual volatility of 10% (assuming that all other variables that affect option prices are the same for the two options.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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d. Briefly explain why you would pay more for a European call option on
a (non-dividend paying) stock which has an annual return volatility of
50% than for a European call on a (non-dividend paying) stock that
has annual volatility of 10% (assuming that all other variables that
affect option prices are the same for the two options.)
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