The value of a put option is positively related to:
I. Exercise price
II. Time to expiration
III. Volatility of the underlying stock price
IV. Risk-free rate
A) I, II, and III only
B) II, III, and IV only
C) I, II, and IV only
D) IV only

Question

Quizplus · Accepted Answer

The value of a put option is positively related to the exercise price, as a higher exercise price gives the option holder the right to sell the stock at a higher price. The value of a put option is also positively related to the time to expiration, as a longer time frame gives the stock more opportunity to decrease in value. Finally, the value of a put option is positively related to the volatility of the underlying stock price, as a more volatile stock has a greater chance of decreasing in value. The risk-free rate does not have a significant impact on the value of a put option.

The Value of a Put Option Is Positively Related To