The value of an interest rate call option
A) varies directly with the price of the underlying corporate bond.
B) increases when the yield on the underlying Treasury security rises.
C) is based on the market price of U. S. Treasury securities.
D) decreases when the price of U.S. Treasuries decreases.

Question

Quizplus · Accepted Answer

Interest rate call options increase in value when interest rates (yields) rise, as they give the holder the right to borrow at a fixed rate. When yields on underlying securities like Treasuries increase, the value of the option goes up because it becomes more advantageous to borrow at the fixed rate.

The Value of an Interest Rate Call Option