Derivatives - Derivatives Section 2

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46. The value of a European option is least likely affected by:

  • Option : C
  • Explanation : The investor’s exposure to the option is not relevant to the price one should pay to buy or ask to sell the option.
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49. The value of a European put option on a dividend paying asset will most likely decrease if there is a:

  • Option : B
  • Explanation : Option 2 will most likely have the highest value because it has a longer time to expiration relative to Option 1 and a lower exercise price relative to Option 3.
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50. What is the most likely impact on the price of a call option if the risk-free rate increases? The option price will:

  • Option : A
  • Explanation : If the risk-free rate increases the call option price increases.
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