The volatility of interest rates affect the value of the project by:
A) increasing the value as volatility increase.
B) increasing the value as volatility decrease.
C) decreasing the value as volatility increase.
D) interest rate volatility does not affect value.

Question

Quizplus · Accepted Answer

Higher volatility in interest rates increases the value of a project because it increases the potential for higher returns, similar to how options become more valuable with increased volatility.

The Volatility of Interest Rates Affect the Value of the Project