7. Options A. How does the price of a call option respond to the following changes, other things equal? Does the price go up or down? Explain briefly the intuition for your answer. (i). Exercise price rises. (ii). Volatility of stock price rises. B. Suppose ElyBxNight Corporation (FBN) is selling a one-year European call option that has an exercise price of $40. Assume that FBN's stock is currently selling for $35 and that over the coming year the price will either rise to $80 or fall to $22. Also assume that the one-year rate of interest is 10 percent. What would be the market price for this call option? Please explain carefully.

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Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.