June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.
A) $40; $30
B) $30; $40
C) $35; $35
D) $40; $40

Question

Quizplus · Accepted Answer

For the call option, the higher the exercise price, the less valuable it is because it becomes less likely to reach that price. Therefore, the $30 call option will have the greatest value as it is more likely to be reached. 
For the put option, the opposite is true - the lower the exercise price, the less valuable it is because it becomes less likely to fall below that price. Therefore, the $40 put option will have the greatest value as it is more likely to fall below that price. 
Therefore, the answer is choice B.

June Call and Put Options on King Books Inc