Question #29
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 14
Status: Unattempted
Correct Answer: B
Question
The value of a put option will be higher if, all else equal, the:
Answer Choices:
A. exercise price is lower
B. underlying asset has positive cash flows
C. underlying asset has less volatility
Explanation
Positive cash flows in the form of dividends will lower the price of the stock making it
closer to being "in the money" which increases the value of the option as the stock price
gets closer to the strike price.