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.

---

Definitions:

Slope

A measure of the steepness or incline of a line, representing the rate at which one variable changes in relation to another.

Budget Line

A graphical representation showing all possible combinations of two goods that can be purchased with a given income and prices.

Horizontal Axis

The x-axis in a graph, typically representing the independent variable or the quantity of interest.

Production Possibilities

A theoretical model depicting the various combinations of goods and services an economy can produce, given its available resources and technology.