The value of a call option increases with the risk-free rate, and the value of a put option decreases with the risk-free rate.

Question

Quizplus · Accepted Answer

The value of a call option is positively related to the risk-free rate because a higher risk-free rate means a higher cost of carry for the underlying asset, which increases the value of the call option. Conversely, the value of a put option is negatively related to the risk-free rate because a higher risk-free rate reduces the present value of the strike price, which decreases the value of the put option.

The Value of a Call Option Increases with the Risk-Free