Which of the following statements is true?
A)An increase in interest rates increases the value of a put option.
B)An increase in volatility increases the value of a put option.
C)A decrease in volatility increases the value of a put option.
D)A decrease in the underlying asset's price decreases the value of a put.

Question

Quizplus · Accepted Answer

An increase in volatility increases the probability that the underlying asset's price will decrease, which makes the put option more valuable. A decrease in volatility decreases the probability that the underlying asset's price will decrease, which makes the put option less valuable. Interest rates do not directly affect the value of put options. A decrease in the underlying asset's price actually increases the value of a put option because it increases the probability of the option being exercised.

Which of the Following Statements Is True