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Describe how the changes in the following variables would affect the price of a call option on common stock, ceteris paribus? Stock price: Volatility Time
Describe how the changes in the following variables would affect the price of a call option on common stock, ceteris paribus?
Stock price:
Volatility
Time to expiration: Direct Relation
Interest rate: Direct relation for call
Exercise price
An increase in stock price, stock price volatility and interest rate would increase the price of call option on common stock. Also, higher level of stock price and exercise price would make put option more valuable.
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