FRM Part I · FRM Exam Part I · Option Sensitivity Measures: The "Greeks"
A European call has a rho of 36.0 per 1.00 (100%) change in the continuously compounded risk-free rate. If the rate rises from 3.00% to 3.50%, and rho is treated as constant for this small move, what is the approximate change in the call price?
The call price rises by about 0.18. Rho is quoted per 1.00 change in the rate, so the 0.50 percentage point rise is 0.005 in decimal form. Multiplying 36.0 by 0.005 gives +0.18. Call rho is positive, so the price increases.
- A+0.18Correct
- B+1.80
- C+18.0
- D-0.18
Explanation
The rate change is 0.0050 in decimal terms. Price change ≈ rho × Δr = 36.0 × 0.005 = +0.18. Treating 0.5 percentage points as 0.05 gives 1.80, and as 0.5 gives 18.0. A negative sign is wrong because call rho is positive.
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