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Consider three at-the-money (ATM) European call options (i.e., S=X for each of them) written on the same underlying asset, with the following common parameter values:
Consider three at-the-money (ATM) European call options (i.e., S=X for each of them) written on the same underlying asset, with the following common parameter values: r=0% p.a. and =100% p.a. However, one of the options matures in T=12 months, another in T=24 months, and the last one matures in 36 months. Based on the premiums of these three call options, what do you conclude regarding the relationship between the call premium and time to maturity? The call option premium decreases as time to maturity increases. There is no relationship between the call option's premium and its time to maturity. The call option premium increases as time to maturity increases. The call option premium remains the same as time to maturity increases. The relationship between the call option's premium and its time to maturity is U-shaped
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