Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Refer to the table below and answer the following question. Option Market Price Strike Price Standard Deviation of Stock Price A. European 3-month put $90
Refer to the table below and answer the following question.
| Option | Market Price | Strike Price | Standard Deviation of Stock Price |
| A. European 3-month put | $90 | $100 | 15% |
| B. European 3-month put | $110 | $100 | 15% |
| C. European 1-month put | $90 | $100 | 15% |
Of the above options, which would you expect to have the highest option price?
| A) | Option C should have the highest option price because Option C has the shortest time to maturity and the same standard deviation as Options A and B. |
| B) | Option A should have the highest option price. It has an intrinsic value of $10, the same standard deviation as Options B and C, and a longer time to expiration than Option C. |
| C) | Option B should have the highest option price. It has an intrinsic value of $10, the same standard deviation as Options A and C, and a longer time to expiration than Option C. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started