Consider Two European Put Options, with Maturities Three Months and Six

question 5

Multiple Choice

Consider two European put options, with maturities three months and six months on the same stock and same strike price. The stock pays no dividends. Which of the following statements is most accurate?

• A) The three-month option must be worth more than the six-month option.
• B) The three-month option must be worth less than the six-month option.
• C) The three-month option must be worth less than the six-month option if the option is deep in-the-money.
• D) The three-month option may be worth more than the six-month option.

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Definitions:

Liquidity

A measure of how easily assets can be converted into cash without affecting their market price.

Profitability

An indicator of how well a company is able to produce profit through its business activities.

Liquidity

A measure of how easily assets can be converted into cash or cash equivalents without significantly altering their value, essential for meeting short-term obligations.

Asset Management

A methodical approach to the creation, operation, upkeep, and disposition of assets that ensures cost efficiency.