Question

Holding everything else constant, put options are more expensive in periods of low interest rates.

True

False

Answer 1

True: Holding everything else constant, put options are more expensive in periods of low interest rates.

Put option are more expensive in low interest rate periods because low interest rates give low impact on strike prices (X). Equation represented below:

P = X*e^(-rate*time) – S0

The Strike price is discounted by interest rate and if the interest rates are low then the over all value of strike price will remain high whereas current stock price (S0) remains constant and that will allow more value for put option holders.