Why Does the Value of a Call Option Increase as the Interest

question 38

Multiple Choice

Why does the value of a call option increase as the interest rate increases?

• A) The stock seller must pay the call owner more interest.
• B) The present value of the exercise price is reduced.
• C) As interest rates increase, stock prices increase.
• D) Interest rate increases reduce the option value.

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Definitions:

Oligopoly

A market structure characterized by a small number of firms controlling a large market share, leading to limited competition.

Collusion

An agreement among firms in a market about quantities to produce or prices to charge

Clayton Act

A U.S. antitrust legislation enacted in 1914, aimed at promoting competition and preventing unfair business practices.

Treble Damages

A legal remedy that allows a court to triple the amount of the actual/compensatory damages to be awarded to a complainant.