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

Finance Nov 27, 2020

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

Expert Solution

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.

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