Interest Rate on a Stock Option?

Question

As I understand it, interest rates on options are 'directly observable,' that is, they are determined for a particular amount of time, and are given, static values for that amount of time. Where can I find the interest rate on a particular option? I do have some standard brokerage accounts; can I find them on there?

Answer 1

The interest rate used in calculating the premium for a stock option is always the "risk free" interest rate. Since there is no such thing as a true "risk free" interest rate, the rate paid by the United States Treasury is used. To find the interest rate, determine how much time there is until the option expires then find the Treasury Bill or Treasury Bond with the same amount of time until maturity. Use the interest rate available from the Treasury.

That is the only interest rate applicable to stock options. There is no interest paid or collected on the actual investment.