Which of the following statements are correct?
I.As the standard deviation of the returns on a stock increase,the value of a put option increases.
II.The value of a call option decreases as the time to expiration increases.
III.A decrease in the risk-free rate increases the value of a put option.
IV.Increasing the strike price increases the value of a put option.
A)I and III only
B)II and IV only
C)I and II only
D)I, III, and IV only
E)I, II, and III only

Question

Quizplus · Accepted Answer

I. Correct, because a higher standard deviation (volatility) increases the probability that the stock will move below the strike price, making the put option more valuable.III. Correct, as a lower risk-free rate reduces the present value of the strike price to be paid at expiration, making the put option more valuable.IV. Correct, because a higher strike price means the put option holder can sell the stock at a higher price, increasing the option's value.

Which of the Following Statements Are Correct