In the Black-Scholes Formula, Interest Rates Are Assumed to Be

Multiple Choice

In the Black-Scholes formula, interest rates are assumed to be constant. This is not appropriate for pricing options on bonds primarily because

A) The value of a bond is constant if interest rates are constant.
B) Constant rates would mean no volatility in bond prices and no option value.
C) Payoffs would be discounted at a constant rate.
D) None of the above.