An increase in value of option leads to low present value of exercise cost only if it has____________?
Correct answer: B. Interest rates are high
- A. Low volatility
- B. Interest rates are high
- C. Interest rates are low
- D. High volatility
Explanation
Higher interest rates reduce the present value of the exercise price, making a call option more valuable because the payment is effectively deferred. Low volatility affects option value differently and does not produce this present-value effect.
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