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.

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Definitions:

Frame Dependence

The influence of presentation or context on individuals' decision-making processes and perception.

Mental Accounting

The tendency of individuals to allocate money for specific purposes in separate mental accounts, affecting their spending and saving behavior.

Confirmation Bias

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, often leading to statistical errors in decision-making.