Question

You own a European put option with 1 month to expiration and with strike price 50, the stock is currently trading at 45, and the riskless interest rate is 5%. What is the intrinsic value of the put?

Answer 1

Answer: 5

Step-by-step explanation:

The answer is quite straight forward. Intrinsic value provides you with the right to exercise the option now.

Here, European put option strick price is 50 and stock is current trading at 45. When you subtract it (50 - 45) you get = 5.

The intrinsic value of the European put is 5.