Last week, Alfonso purchased a three-month put option on shares of DOG stock. This week DOG shares declined in price and the rate on Treasury bills also declined. As a result of these two events,
With all else constant, the value of Alfonso's options:

Question

Quizplus · Accepted Answer

A put option is a contract that gives the owner the right, but not the obligation, to sell a stock at a specified price (strike price) within a specific time frame. If the price of the stock declines, the value of the put option increases. Additionally, the value of put options tends to increase when interest rates decline, as the cost of financing the purchase of the shares decreases. Therefore, since both events - decline in the market value of DOG stock and decline in the Treasury bill rate - would lead to an increase in the value of Alfonso's put option, choice A is the correct answer.

Last Week, Alfonso Purchased a Three-Month Put Option on Shares