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

question 88

Multiple Choice

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

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

---

Definitions:

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses.

Representativeness Heuristic

A cognitive shortcut used in decision making, where an individual relies on the similarity between the item in question and a category prototype.

Divergent Thinking

Expanding the number of possible problem solutions; creative thinking that diverges in different directions.

Fixation

(1) in thinking, the inability to see a problem from a new perspective; an obstacle to problemsolving. (2) in personality theory, according to Freud, a lingering focus of pleasure-seeking the developing human organism from about 2 weeks after fertilization through the secondmonth