3. It is always optimal to early exercise an in the money American styleoption on the day before a dividend is payable.4. Because of the possibility of early exereise, put call parity does notapply to American style options.A) 1 & 4B) 1, 2, & 3C) 1 & 2D) 3E) All of them Q5: Which of the following statements are true about early option exereise(for American style options)? (Assume r > 0.)1. It is never optimal to early exercise a call option on a non-dividendpaying stock.2. It is never optimal to early exercise a put option on a non-devidendpaying stock.

American style options: American style options allow a holder to exercise the right to buy or sell…

Q5: Which of the following statements are true about early option exercise (for American style options)? (Assume r > 0.) 1. It is never optimal to early exercise a call option on a non-dividend paying stock. 2. It is never optimal to early exercise a put option on a non-devidend paying stock.

Q5: Which of the following statements are true about early option exercise (for American style options)? (Assume r > 0.) 1. It is never optimal to early exercise a call option on a non-dividend paying stock. 2. It is never optimal to early exercise a put option on a non-devidend paying stock.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

3. It is always optimal to early exercise an in the money American style
option on the day before a dividend is payable.
4. Because of the possibility of early exereise, put call parity does not
apply to American style options.
A) 1 & 4
B) 1, 2, & 3
C) 1 & 2
D) 3
E) All of them

Q5: Which of the following statements are true about early option exereise
(for American style options)? (Assume r > 0.)
1. It is never optimal to early exercise a call option on a non-dividend
paying stock.
2. It is never optimal to early exercise a put option on a non-devidend
paying stock.

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Consider a call option whose maturity date is T and strike price is K. At any time t < T, is it always the case that the call option's price must be greater than or equal to max(St – K,0), where St is the stock price at t? (Your answer cannot be more than 30 words. Answers with more than 30 words will not be graded.)
[S1] The longer the time to expiration, the less valuable the option is. [S2] The more volatile the price of theunderlying asset, the less valuable the option is. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.
You hold a portfolio of an asset-or-nothing call and a cash-or-nothing put option written on a stock that does not pay dividends. The strike price of the options is the same. The payout of the cash-or- nothing option if it is exercised equals the strike price. Your portfolio is equivalent to O A plain-vanilla call option. O None of the other answers are correct. O A covered call position, i.e., a long stock + short plain vanilla call. O A plain-vanilla put option. O A protective put position, i.e., a long stock + long put option.
Which of the following is TRUE? An American call option on a stock should never be exercised early O An American call option on a stock should not be exercised early when no dividends are expected O It can be optimal to exercise early an American call option on a stock when no dividends are expected and there is no liquidity or portfolio rebalancing need. O An American call option on a stock should be exercised early when no dividends are expected
If underlying is non-dividend paying, then the time value of an American call option is positive, hence American call should never be exercised early. True False
The value derived from exercising an option immediately is the exercise value. No rational investor would exercise an option that is out-of-the-money, so the minimum exercise value is zero. The following table provides information regarding options on ABC Corp. stock. Because the stock’s price is volatile, investors trade options to either hedge their positions or speculate on price movements. Investors can either buy options or “issue” new options, which is called writing options. Based on your understanding of exercise value and option prices, complete the table with a strike price of $30.00: Stock Price ($) Strike Price ($) Exercise Value ($) Market Price of Option ($) Time Value ($) 20.00 30.00 0.00 1.56 40.00 30.00 12.10 2.10 50.00 30.00 22.40 2.40 55.00 30.00 25.00 27.60 60.00 30.00 34.00 4.00 After two weeks, the stock price of ABC Corp. increases to $62.40. Suppose you purchased the shares for $40.00 and then sell…
What is correct option and incorrect option with explanation please without plagiarism please Introduction and explanation and final answer required please
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Is the Black-Scholes-Merton options pricing model well suited to pricing an American call option on a dividend paying stock?
Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
What does it mean to assert that the delta of a call option is 0.7? How can a short position in 1,000 options be made delta neutral when the delta of each option is 0.7?
[S1] An American option would be more valuable than a European option. [S2] When the price of the underlyingasset is greater than the exercise price of the option, then a call option would be more valuable than a putoption. a. Only S1 is true. b. Only S2 is true. c. Both are true. d. Both are false.

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