Ultimate access to all questions.
Answer-first summary for fast verification
Answer: in the money.
## Explanation For a put option: - **In the money (ITM)**: When the strike price is **greater than** the current stock price - **At the money (ATM)**: When the strike price is **equal to** the current stock price - **Out of the money (OTM)**: When the strike price is **less than** the current stock price **Given:** - Current stock price = $100 - Strike price = $105 - Risk-free rate = 5% (irrelevant for moneyness determination) - Time to expiration = 1 year (irrelevant for moneyness determination) **Analysis:** - Strike price ($105) > Current stock price ($100) - For a put option, this means the option has **intrinsic value** because you could exercise it to sell the stock at $105 when it's only worth $100 in the market. - The intrinsic value = Strike price - Stock price = $105 - $100 = $5 Since the strike price is higher than the current stock price, the put option is **in the money**. **Why the risk-free rate is irrelevant:** The moneyness of an option is determined solely by the relationship between the current stock price and the strike price. The risk-free rate affects the option's time value and overall premium, but not whether it's in, at, or out of the money. **Correct answer: B (in the money)**
Author: LeetQuiz .
The price of a stock is $100 and the risk-free rate is 5%. If the strike price of a European put option with one year until expiration is $105, the put option is:
A
at the money.
B
in the money.
C
out of the money.
No comments yet.