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(TCO I) The higher the exercise price the _____ the value of a put and the...

(TCO I) The higher the exercise price the _____ the value of a put and the _____ the value of a call.

higher; higher

lower, lower

higher, lower

lower, higher

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Answer #1

Answer:The higher the exercise price the HIGHER the value of a put and the LOWER the value of a call.

We know that call is an option to buy and put is an option to sell. The value of an option depends on its strike price. Premium will be high when the probability of option being in the money is high and vice-versa.

For a call option as the strike price increases the probability of option being in the money will decreases. Hence as the strike price increases premium decreases.

For a put option as the strike price increases the probability of option being in the money will also increases. Hence as the strike price increases premium also increases.

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