Answer: inversely related to the risk-free interest rate.

## Explanation For a European put option: **Option A: inversely related to the exercise price** - This is **INCORRECT**. The value of a put option is **directly** related to the exercise price. A higher exercise price makes the put more valuable because it gives the holder the right to sell at a higher price. **Option B: inversely related to the risk-free interest rate** - This is **CORRECT**. Higher interest rates decrease the present value of the exercise price (which is received when the put is exercised), thus reducing the value of the put option. **Option C: directly related to the value of the underlying** - This is **INCORRECT**. The value of a put option is **inversely** related to the value of the underlying asset. As the underlying price increases, the put becomes less valuable because the right to sell at a fixed price becomes less attractive. ### Key Relationships for Put Options: 1. **Positive relationship with exercise price** (higher strike = more valuable put) 2. **Negative relationship with underlying price** (higher underlying = less valuable put) 3. **Negative relationship with interest rates** (higher rates = less valuable put) 4. **Positive relationship with volatility** (higher volatility = more valuable put) 5. **Negative relationship with time to expiration** (longer time = more valuable put) Therefore, only option B correctly describes the relationship for a European put option.

Author: LeetQuiz .