Question

When an American call has been exercised early, which of the following inferences about the stock...

When an American call has been exercised early, which of the following inferences about the stock and the option is true:

a) The time value of the options negative

b) The intrinsic value of the option is positive

c) The stock must pay dividends after the date of exercise

d) all of the above

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The correct option is "B".

American options have the right to be exercised anytime. So when the Intrinsic value of the call option is positive, that means that the stock price is more than the exercise price of the call option then the buyer of the call option can exercise the option and gain from it. Call option is the right to buy a stock at the exercise price, so when the stock price goes above exercise price, then the intrinsic value of the call option is positive and buyer of call option may exercise the option to enjoy gain.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An American call option on a share of stock is never exercised early if Group of...
An American call option on a share of stock is never exercised early if Group of answer choices The underlying stock has low volatility. The underlying stock does not pay dividends The risk-free rate is zero. The underlying stock pays large dividends.
Which of the following is correct about options? The buyer of a call option will break...
Which of the following is correct about options? The buyer of a call option will break even (profit=0) when the price of the stock equals strike price. European options can only be exercised on the expiration date but can be sold to another investor on any trading day. The time value of a call option can be negative The buyer of a call option has the right to any dividends paid after the option was purchased
An American put might be exercised early even when there are no dividends on the underlying...
An American put might be exercised early even when there are no dividends on the underlying stock. True False
It is well-known that an American call option written on non-dividend paying stock shouldn’t be exercised...
It is well-known that an American call option written on non-dividend paying stock shouldn’t be exercised early. Please explain why an American futures call might ever be worth exercising early, even if the underlying stock of the futures doesn’t pay any dividend. (Hint: what is the risk neutral probability for pricing future option, and what is the risk neutral probability for pricing a stock option where the stock is dividend paying?)
Which of the following is true when there are dividends a.It is never optimal to exercise...
Which of the following is true when there are dividends a.It is never optimal to exercise a call option on the stock early b.It can be optimal to exercise a call option at any time c.It is only ever optimal to exercise a call option immediately after an ex-dividend date d.None of the above
Which of the following statements is true? If interest rate is positive and the stock pays...
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...
Which of following statements about options contracts is correct? The holder of a European call option...
Which of following statements about options contracts is correct? The holder of a European call option has the right to buy the underlying asset at the exercise price on or before the expiration date. The holder of an American put option has the right to sell the underlying asset at the exercise price on or before the expiration date.   The holder of a European put option has the obligation to sell the underlying asset at the exercise price on the...
The common stock of the CALL Corporation has been trading in a narrow range around $50...
The common stock of the CALL Corporation has been trading in a narrow range around $50 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $50 is $4 and a call wit the same expiration date and exercise price sells for $7 A. What would be a simple options strategy using a put and a call to...
An investor is very bullish about the stock market but does not want to take too...
An investor is very bullish about the stock market but does not want to take too much risk. He decides to buy four American call options on one particular stock. Each option is for 100 shares with exercise price at $65 per share and maturity of eight months. He is told that the expected return from the stock is 20% per annum with annual volatility of 30%. The current stock price is $61. The risk{free rate is 6% per annum....
Which of the following statements with respect to stock options is correct? If the option price...
Which of the following statements with respect to stock options is correct? If the option price for shares is less than the grant date market value of the shares, granting the options will create a taxable benefit for the grantee. If shares in a Canadian controlled private corporation are acquired through the exercise of stock options, there will be a deduction equal to one-half of the employment income inclusion, provided the shares were held for at least two years. When...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT