Last Week, Alfonso Purchased a Three-Month Put Option on Shares

question 234

Multiple Choice

Last week, Alfonso purchased a three-month put option on shares of DOG stock. This week DOG shares declined in price and the rate on Treasury bills also declined. As a result of these two events,
With all else constant, the value of Alfonso's options:

• A) Increased in value as a result of both events.
• B) Decreased in value as a result of both events.
• C) Increased in value due to the decline in the market value of DOG stock but was unaffected by the change in the Treasury bill rate.
• D) Decreased in value due to the decline in the market value of DOG stock but increased in value from the change in the Treasury bill rate.
• E) Changed in value but the direction of the change cannot be determined from the information provided.

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Definitions:

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