Question

8. The five factors affecting prices of call and put options

Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different.

Use the following table to identify whether each statement describes put options or call options:

Statement	Put Option	Call Option
1. An increase in risk-free rate reduces the present value of the option’s exercise price.
2. When the risk-free rate decreases, put prices increase.
3. Option prices are lower when the stock price is higher.
4. The price of a three-month option is always lower than the price of a six-month option.

Answer 1

Here is solution of your question. All the best.

! Option Option cx a contractual agreement that gives the option buyee the right, but not obligation to purchase or rell asset or instrument at a specified price on or before specified time. Call option call option giver holder right to buy an arret, but not an obligation to buy. It is exercised cohen excerche price is lower than Maskel price. Put Option Put option giver holder sight to buy sell an artet, but not an obligation to sell, H is exexcised when exercise perce is - higher than Market price. . 1. An increase in sisk - free rate, seeduced the present value of the option's exerche price. Andelf interere sate site, then pur price will decrease. It is a put option, pune option 2. There is inverre çelation between interest in ti so when eato decreare, put prices in create.kz is put opten 3.It is put option, cohen option pricei are lower ( stock - price is higher. 4. It is cou option, as the price c4 3-month option is always lowese than the price o 6-month option due to time value of money.