Option Valuation: Consider a Put Option with a Strike Price

question 19

Multiple Choice

Option valuation: Consider a put option with a strike price of $40, which expires in one year. The risk-free rate of interest is 8 per cent. The current underlying share price is $20. Without arbitrage, which of the following is a possible price for the put option?

• A) $0.50
• B) $16.50
• C) $25.00
• D) None of the above

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Definitions:

Perceptual Errors

Mistakes in judgment that occur due to inaccuracies in the perceptual process, leading to incorrect interpretations of information.

Competencies

A set of defined skills, knowledge, abilities, and attributes that contribute to successful performance in a job or task.

International Move

The process of relocating to a different country for purposes such as employment, study, or personal reasons, which involves adapting to new cultures and regulatory environments.

Human Resource Management

The strategic approach to the effective management of people in an organization to help them gain a competitive advantage.