Question

Which of the following statements is true?

		If interest rate is positive and the stock pays no dividends then it is better to keep an American call option alive than to exercise it even if it is far in the money
		It never makes sense to exercise an American put option early
		Put-call parity holds for American options, just like it does for European options
		If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate

Answer 1

Option C.Put-call parity holds for American options, just like it does for European options

Put-call parity will holds good for both American options & European options.

The only difference between American options & European options is that a European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiration date.