My option underlying Stock: Suncor Energy (TSX:SU) The exercise Price: $45 The option Price: $1.25 The expiration Date: January 20, 2024 The intrinsic Value: $2 (current stock price - exercise price) Time to Expiration: 18 months Implied Volatility: 20% Total Cost (ignoring brokerage fees): $125 (100 x option price) Potential Profit if Stock Price Rises to $50: $125 (intrinsic value + premium) Break-even Point: $46.25 (exercise price + premium)

Suppose interest rates increase 1%. What is the effect of this increase on the option you chose. Explain the effect. NOTE: Your answer needs to demonstrate analysis, critical thinking and theory. If it does not contain ALL these elements, you only score 25% of the points available for this element of the assignment.

Answer rating: 100% (QA)

An increase in interest rates can have a significant effect on option prices particularly on call options Heres how the increase in interest rates mig... View the full answer