Question

Increases in the risk-free rate will____the value of a call option and___the value of a put option.

group of answer choices
A. increase; decrease
B. not change; not change
C. increase; increase
D. decrease; decrease

Answer 1

option a.Increases in the risk-free rate will increase the value of call options and decrease the value of put options.

Step-by-step explanation:

Increases in the risk-free rate typically increase the value of a call option because the present value of the exercise price decreases, making the option more attractive to hold for the potential upside.

Conversely, this will decrease the value of a put option because the present value of the exercise price one would get by exercising the option becomes less valuable. Therefore, the correct group of answers is A. increase; decrease.

Increases in the risk-free rate will decrease the value of a call option and increase the value of a put option.