In the Black-Scholes Option Pricing Model,an Increase in the Risk

question 38

Multiple Choice

In the Black-Scholes option pricing model,an increase in the risk free rate (RFR) will cause

• A) An increase in call value and an increase in put value
• B) An increase in call value and a decrease in put value
• C) A decrease in call value and an increase in put value
• D) A decrease in call value and a decrease in put value
• E) An increase in call value and an increase or decrease in put value

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Definitions:

Z

In statistics, \(Z\) often represents the z-score, a measure of how many standard deviations an element is from the mean.

Simplify

Reduction of expressions or equations to their simplest form by performing available operations.

Expression

A combination of numbers, variables, and operations that together represent a particular value.

Positive Exponents

Represent numbers multiplied by themselves a certain amount of times, indicating a base raised to the power of a positive number.