Why is the value of a call option said to increase as the interest rate increases?
A) The stock seller must pay the call owner more interest.
B) The present value of the strike price is reduced.
C) As interest rates increase, stock prices increase.
D)Interest rate increases reduce the option premium.

Question

Quizplus · Accepted Answer

As the interest rate increases, the present value of the strike price decreases. This is because the strike price is a future value, and increasing interest rates decrease the present value of future cash flows. As the present value of the strike price decreases, the call option becomes more valuable.

Why Is the Value of a Call Option Said to Increase