All else the same, when the interest rate rises, the lower bound on a call option
A) Falls or stays the same.
B) Stays the same.
C) Increases or stays the same.
D) May become negative.

Question

Quizplus · Accepted Answer

The value of a call option is positively related to the interest rate. As the interest rate rises, the present value of the exercise price decreases, making it cheaper to buy the stock in the future. This increases the value of the call option, hence the lower bound (or minimum value) of the call option either increases or stays the same.

All Else the Same, When the Interest Rate Rises, the Lower