When answering CFA exam questions, it’s good to think in a boarder perspective (the whole market) and think as you are the real investors. This can help you answer many questions easily.

So, in a real market, many people borrow moneys to invest in securities as well as many lend money to earn fixed rate interest. If you long a security, you can either buy the security or a call option. Option is cheaper, of course. To buy the same corresponding number of stocks, you need more money. If the interest rate is low, you will have higher tendency to borrow money to buy stocks (because stocks have lower risk than the options). Therefore, when the interest rate is low, less people try to buy stock options and thus lower the option price.

Anyone has other comments?

“If you long a security, you can either buy the security or a call option. Option is cheaper, of course. To buy the same corresponding number of stocks, you need more money. If the interest rate is low, you will have higher tendency to borrow money to buy stocks (because stocks have lower risk than the options). Therefore, when the interest rate is low, less people try to buy stock options and thus lower the option price.”

A better answer would be to look at what happens when you buy a security vs. a call. If you buy a call, you can invest the rest of the money in an interest-bearing instrument. The more interest you receive, the higher the price you can pay for the call.