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Homework answers / question archive / Question 10 1 pts Consider the following data for Stock HHH and then choose the correct answer to the questions below: Price of Stock HHH $50
Question 10 1 pts Consider the following data for Stock HHH and then choose the correct answer to the questions below: Price of Stock HHH $50.00 Exercise Price of 3-month Put $51.00 Market Price of Put $3.00 What is the time value for the put? What is the maximum profit the buyer put earn? $1.00 : $48.00 $2.00: $48.00 0 $3.00 : $50.00 $2.00 : $51.00 $1.00 : $51.00
The correct answer is 2ND OPTION
Explanation
Total value of put option = $ 3
Strike price = $ 51
Current stock price = $ 50
Current intrinsic value = Strike price - stock price
= 51- 50
= $ 1
Time value of put option = Total value of put option - Intrinsic value
= 3 - 1
= $ 2
Maximum profit available to buyer in case of put option = Strike price - Premium
= 51 - 3
= $ 48
So time value is $ 2 and Maximum profit is $ 48.
So 2nd option is the correct answer.
