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:

Inductive

Pertaining to inductance, the property of an electrical conductor by which a change in current through it induces an electromotive force (EMF) in both the conductor itself and in any nearby conductors by mutual inductance.

Capacitive

Related to the ability of a system or component to store charge and energy in the electric field, characteristic of capacitors or systems with capacitive elements.

Ripples

Fluctuations or variations in the output voltage of a power supply, often resulting from incomplete suppression of AC waveform within DC output.

Harmonics

In electrical systems, harmonics are frequencies that are integer multiples of the base fundamental frequency, leading to distortion in power systems.