Option Valuation: Consider a Put Option with a Strike Price

question 22

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 percent. The current underlying stock 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

---

Definitions:

Key Attributes

Essential properties or characteristics of an entity or object that help in its identification and classification.

Confidentiality

The principle or state of keeping certain information secret or private, typically to protect sensitive data or personal privacy.

Totipotency

The ability of a single cell to divide and produce all of the differentiated cells in an organism, including extraembryonic tissues.

Organogenesis

The phase of embryonic development during which the organs are formed from the three germ layers.