Assume that the stock of EffeUn, Inc. is currently trading for $16 and will either rise to $18 or fall to $12 in one year. The risk-free rate for one year is 1 percent. What is the value of a put option with a strike price of $10?

Question

Quizplus · Accepted Answer

Given the strike price of $10 and the stock's potential future prices ($18 or $12), the put option would only be exercised if the stock price falls below the strike price. Since the lowest future stock price ($12) is still above the strike price, the put option would not be exercised, making its value $0.

Assume That the Stock of EffeUn, Inc