Question

In referring to the Black-Scholes formula for pricing a European put option on a dividend paying stock, which of the following statements are true? I. The put price increases as the strike decreases II. The put price increases as volatility increases III. The put price increases as the dividend decreases a) I only c) I and II e) I, II and III b) Il only d) II and III

Answer 1

d) II & III

Put price should decrease with decreasing strike price has we are not getting a right sell at lower and lower price

Option prices increase as volatility of underlying increases

Put prices increase with increasing dividends because the ex-dividend price of stock decreases