Why does the time value of the option tend to vary directly with the time to expiration?
What will be an ideal response?
Prior to expiration there is always the chance that the market price of the underlying asset will move to make the option valuable. Since probability of this happening is greater with more time to expiration, the time value of the option moves directly with time to expiration since the time value of the option reflects this potential benefit.
You might also like to view...
Your school offers college seniors one "free" college course. Is this course also free to society?
A. Yes, because the seniors live in society. B. Yes, because the school has satisfied the assumption of making a rational choice. C. No, because if a college-senior takes the last seat in the class, t then a paying student will not have the opportunity to take it. D. No, because some students will not take a free class seriously and will ultimately become less productive workers.
If a union insists that the employer hire only union members, this is called a
a. union shop b. monopsony c. monopoly d. open shop e. closed shop
The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue
a. True b. False Indicate whether the statement is true or false
Unemployment data is collected
a. through a monthly survey of about 20,000 firms. b. through a monthly survey of about 60,000 households. c. from unemployment insurance claims. d. All of the above are correct.