A higher level of which of the following variables would make a put option on common stock more valuable,ceteris paribus?
I. Stock price
II. Stock price volatility
III. Interest rates
IV. Exercise price

Question

Quizplus · Accepted Answer

A higher level of stock price volatility (II) would increase the probability of the stock price falling below the exercise price, making the put option more valuable. A higher level of exercise price (IV) would also increase the value of the put option as it gives the holder the right to sell the stock at a higher price. A higher level of stock price (I) or interest rates (III) would not necessarily make the put option more valuable, ceteris paribus. Therefore, the best choice is (B) II and IV only.

A Higher Level of Which of the Following Variables Would