- This topic has 1 reply, 1 voice, and was last updated Apr-198:26 am by
.
-
Posts
-
-
Up1
What is the most likely result of a decrease in the risk-free rate of return on put and call option prices?
- A. Put and call option prices will increase.
- B. Put option prices will decrease and call option prices will increase.
- C. Put option prices will increase and call option prices will decrease.
-
Up3
The correct answer is C.
The result of a decrease in the risk-free rate of interest will increase put option prices and decrease call option prices.
A call option can be looked at as the right to delay a purchase. The higher the interest rate you can earn on the cash you will use to make that purchase, the greater the benefit of being able to delay that purchase.
A put option can be looked at as the right to delay a sale. The higher interest rate you can earn on the cash generated from that sale, the less desirable it is to delay that sale.
-
Viewing 1 reply thread
- You must be logged in to reply to this topic.