A Put Option with Several Months Until Expiration Has a Strike

question 80

Multiple Choice

A put option with several months until expiration has a strike price of $55 when the stock price is $50. The option has ________ intrinsic value and ________ time value.

• A) negative; positive
• B) positive; positive
• C) zero; zero
• D) zero; positive

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Definitions:

Net Present Value Method

A method used in capital budgeting to assess the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period of time.

Discounted Cash Flow Method

A valuation technique that estimates the value of an investment based on its expected future cash flows, adjusted for time value of money.

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Time Value of Money Concept

The principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity.