Assume the risk-free rate increases. This change will ________ the value of call options and ________ the value of put options on shares of stock.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
E) not affect; not affect

Question

Quizplus · Accepted Answer

An increase in the risk-free rate generally increases the value of call options because the present value of the exercise price decreases. Conversely, it decreases the value of put options as the present value of the exercise price increases.

Assume the Risk-Free Rate Increases