Which of the following statements about options on Warwick plc stock, a non- dividend-paying stock, is/are true? (a) The current value of a short American call option is minus the current value of the corresponding long European call option with the same strike price and maturity. (b) The current value of a short American put option is minus the current value of the corresponding long European put option with the same strike price and maturity. (c) If the option is sufficiently in-the- money and the risk-free rate is positive, the value of a long European put option is strictly less than the payoff to the put option.
Which of the following statements about options on Warwick plc stock, a non- dividend-paying stock, is/are true? (a) The current value of a short American call option is minus the current value of the corresponding long European call option with the same strike price and maturity. (b) The current value of a short American put option is minus the current value of the corresponding long European put option with the same strike price and maturity. (c) If the option is sufficiently in-the- money and the risk-free rate is positive, the value of a long European put option is strictly less than the payoff to the put option.
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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Transcribed Image Text:2. Which of the following statements about
options on Warwick plc stock, a non-
dividend-paying stock, is/are true?
(a) The current value of a short American
call option is minus the current value of the
corresponding long European call option
with the same strike price and maturity.
(b) The current value of a short American
put option is minus the current value of the
corresponding long European put option
with the same strike price and maturity.
(c) If the option is sufficiently in-the-
money and the risk-free rate is positive, the
value of a long European put option is
strictly less than the payoff to the put
option.
(a) only.
O (b) only.
(c) only
(a) and (c) only
(a), (b) and (c)
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