What impact does each of the followingparameters have on the value of a call option?(4) Risk-free rate

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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What impact does each of the following
parameters have on the value of a call option?
(4) Risk-free rate

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Introduction

An agreement where the holder has a right to purchase or sell the shares at a specific price at a later date is known as an Option. An option has to be purchased therefore; it has a price. Options can be two types:

  • Call – the holder of this option intends to or has the right to buy the underlying assets/shares on a later date at a fixed price
  • Put – the holder of these intends to sell the shares on a later date at a specified price.
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