Consider two six-month American puts at strikes 90 and 100.The risk free rate is 2%.The difference between the two put prices at any time before maturity will always be
A)Less than $10.
B)Equal to $10.
C)Greater than $10.
D)One cannot be sure of which of the preceding three choices is valid and more information may be required.

Question

Quizplus · Accepted Answer

The value of an American put option depends on several factors including the current price of the underlying asset, volatility, time to expiration, and the risk-free rate. The difference between the prices of two American puts with different strike prices cannot be determined to be less than, equal to, or greater than $10 without additional information about the underlying asset's price and its volatility.

Consider Two Six-Month American Puts at Strikes 90 and 100