All other factors constant, the higher the short-term, risk-free interest rate, the ________ the cost of buying the underlying asset and carrying it to the ________ of the call option.

Question

Quizplus · Accepted Answer

The higher the short-term, risk-free interest rate, the greater the cost of carrying the underlying asset. This increased cost of carrying the asset to the expiration date will increase the cost of holding the call option, resulting in a higher price for the option.

All Other Factors Constant, the Higher the Short-Term, Risk-Free Interest