Which of the following statement is true? a. Put-call parity holds for American options, just like it does for European options. b. If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate. C. 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. d. It never makes sense to exercise an American put option early.
Which of the following statement is true? a. Put-call parity holds for American options, just like it does for European options. b. If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate. C. 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. d. It never makes sense to exercise an American put option early.
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:Which of the following statement is true?
a. Put-call parity holds for American options, just like it does for European options.
b.
If a European option is priced below its lower bound, then the arbitrage includes borrowing at the risk-free rate.
C.
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.
d.
It never makes sense to exercise an American put option early.
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