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Answer :
A put option gives the holder the right, but not the obligation, to sell a specific stock at a predetermined price (known as the exercise price) within a specified time frame. The value of a put option is determined by the difference between the exercise price and the current stock price, minus any premium paid for the option.
In this case, the exercise price is SR 48, the stock price is SR 40, and the premium is SR 5. By substituting these values into the formula, we can calculate the value of the put option. Subtracting the stock price and premium from the exercise price gives us the final value of SR 3. This means that if the stock price remains at SR 40 or decreases, the put option holder could potentially sell the stock at a profit.
The value of a put option can be calculated using the following formula:
Put Option Value = Exercise Price - Stock Price - Premium
In this case, the exercise price is SR 48, the stock price is SR 40, and the premium is SR 5.
Substituting these values into the formula:
Put Option Value = 48 - 40 - 5
Simplifying the equation:
Put Option Value = 3
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