As Uncertainty (Volatility) decreases with all else being equal, A. The price of the option will not change B. The price of the option will increase C. The price of the option will decrease D. The price of the option may increase or decrease depending on the underlying asset

As Uncertainty (Volatility) decreases with all else being equal, A. The price of the option will not change B. The price of the option will increase C. The price of the option will decrease D. The price of the option may increase or decrease depending on the underlying asset

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter6: Saving And Investing

Section6.3: Special Savings Plans And Goals

Problem 5R

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Question

As Uncertainty (Volatility) decreases with all else being equal,

	A.	The price of the option will not change
	B.	The price of the option will increase
	C.	The price of the option will decrease
	D.	The price of the option may increase or decrease depending on the underlying asset

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11. Case study a. Let's say your friend offer simple investment. You are planning to buy an asset for RM 3350. This investment is very safe. You would sell off the asset in three years for RM 400. You know you could invest RM 335 elsewhere at 10 percent with very little risk. What do you think of the proposed investment?