Explanation:
A. Incorrect because the value of a European put option can be either directly or inversely related to the time to expiration. The direct effect is more common, but the inverse effect can prevail with a put the longer the time to expiration, the higher the risk-free rate, and the deeper it is in-the-money. B. Correct because the value of a European put option can be either directly or inversely related to the time to expiration. The direct effect is more common, but the inverse effect can prevail with a put the longer the time to expiration, the higher the risk-free rate, and the deeper it is in-the-money. C. Incorrect because the value of a European put option can be either directly or inversely related to the time to expiration. The direct effect is more common, but the inverse effect can prevail with a put the longer the time to expiration, the higher the risk-free rate, and the deeper it is in-the-money.
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All else being equal, the value of a European put option is most likely inversely related to the time to expiration when interest rates are high, the time to expiration is long and the put is:
A
at-the-money
B
deep in-the-money.
C
deep out-of-the-money.