As interest rates fall,bond prices and call option potential profits increase.

Question

Quizplus · Accepted Answer

When interest rates fall, bond prices increase because the fixed interest rate of the bond becomes more attractive in a lower interest rate environment. As bond prices increase, call option potential profits also increase because the holder of the call option has the right to buy the bond at a lower price and sell it at a higher price, earning a profit.

As Interest Rates Fall,bond Prices and Call Option Potential Profits