Question

Suppose the interest rate on T-bills suddenly and unexpectedly rises. All other things being the same, what is the impact on call option values? On put option values?

   Suppose the interest rate on T-bills suddenly and unexpectedly rises. All other things being the same, what is the impact on call option values? On put option values?

Fundamentals of Corporate Finance

Fundamentals of Corporate Finance

Stephen A. Ross;… 11th Edition

Chapter 24, Problem 9

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This has an impact on both call and put option values. For call options: - The value of a call option is derived from the underlying asset's price and the risk-free rate of return. When the interest rate rises, the risk-free rate of return increases, which in Show more…

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Suppose the interest rate on T-bills suddenly and unexpectedly rises. All other things being the same, what is the impact on call option values? On put option values?

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