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Answer: Double the risk-free rate to 6.0%.
The least effect on the call price comes from doubling the risk-free rate from 3.0% to 6.0%, which increases the option value by less than $1.00 (about **$0.785**). The other changes produce larger increases: stock price +$5 raises the call by about **$3.182**, volatility from 20% to 30% raises it by about **$2.778**, and doubling time to expiration raises it by about **$3.042**. In general, option values are most sensitive to the underlying stock price, volatility, and time to expiration.
Author: Manit Arora
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Q-725.1 Which of the following changes to the Black-Scholes inputs increases the call option price the least?
A
Double the risk-free rate to 6.0%.
B
Increase the stock price by $5.00 to $105.00.
C
Increase volatility by 10.0% to 30.0%.
D
Double the time to expiration to 1.0 year.
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