With Everything Else Held Constant, What Happens to the Value

question 61

Multiple Choice

With everything else held constant, what happens to the value of call and put options if the risk-free interest rate increases?

• A) Call options will be worth more, put options will be worth less.
• B) Call options will be worth less, put options will be worth more.
• C) Both call and put options will be worth less.
• D) Both call and put options will be worth more.

---

Definitions:

Factory Overhead

All indirect costs associated with manufacturing, including utilities, maintenance, and salaries of supervisory personnel, not directly tied to the production of goods.

Direct Labor

The labor costs directly associated with the production of goods, such as wages paid to workers who are actively involved in the manufacturing process.

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product and are an integral part of the finished product.

FIFO Method

An inventory valuation method that assumes the first items purchased are the first ones sold, standing for "First-In, First-Out."