Analyze the impact of interest rates on options pricing, outlining how they affect the valuation of both call and put options.

Interest rates play a significant role in options pricing, influencing the valuation of both call and put options in distinct ways. Call Options: Positive Impact: Rising interest rates generally boost the value of call options. This is because higher interest rates make holding cash less attractive, encouraging investors to seek higher returns through investments. Call options offer the potential for significant upside gains, particularly when the underlying asset's price is expected to rise. For example, imagine an investor holding a call option on a stock that is expected to increase in value. If interest rates rise, the opportunity cost of holding cash increases, making the potential gains from exercising the call option more attractive. Impact on Intrinsic Value: Interest rates do not directly influence the intrinsic value of a call option, which is determined by the difference between the....