Which option price(s)will increase when the interest rate increases?
A)both the call and put
B)call only
C)put only
D)neither the call nor the put
E)Answer cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

The price of a call option increases with an increase in interest rates due to the cost of carry. Higher interest rates increase the cost of holding a position, which is reflected in the price of call options. Put options, however, do not necessarily increase in value with higher interest rates and can actually decrease in value, making "call only" the correct choice.

Which Option Price(s)will Increase When the Interest Rate Increases