Taagart has a volatility of 25% and a current share price of $40. Taagart does not pay dividends. The risk- free interest rate is 4%. Assume a one-year at-the-money call option. An increase in the volatility of the option from 25% to 40% affects the price of this call option so that it: A) increases by $0.70 B) increases by $2,30 C) decrease by $1,70 D) increases by $2,80
Taagart has a volatility of 25% and a current share price of $40. Taagart does not pay dividends. The risk- free interest rate is 4%. Assume a one-year at-the-money call option. An increase in the volatility of the option from 25% to 40% affects the price of this call option so that it: A) increases by $0.70 B) increases by $2,30 C) decrease by $1,70 D) increases by $2,80
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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Transcribed Image Text:Taagart has a volatility of 25% and a current share price of $40. Taagart does not pay dividends. The risk-
free interest rate is 4%. Assume a one-year at-the-money call option. An increase in the volatility of the
option from 25% to 40% affects the price of this call option so that it:
A) increases by $0.70
B) increases by $2,30
C) decrease by $1,70
D) increases by $2,80
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