As the Risk Free Rate of Return Increases, the Value

question 22

Multiple Choice

As the risk free rate of return increases, the value of call options ________ and the value of put options ________.

• A) decreases, increases
• B) increases, increases
• C) decreases, decreases
• D) increases, decreases

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Definitions:

Balance Sheet

An accounting summary that captures a company's financial holdings, debts, and stockholders' equity at a given time.

Income Statement

A financial statement that shows a company's revenues, expenses, and profit over a specific period of time.

Vertical Analysis

A method of financial statement analysis in which each entry for each of the three major categories of accounts (asset, liabilities, and equity) in a balance sheet is represented as a proportion of the total account.

Operating Income

Earnings before interest and taxes (EBIT), representing the profits from a company's regular business operations excluding deductions of interest and taxes.