2. As the time to expiration becomes longer, an American call option always becomes more valuable.
(a) True
(b) False
(a) True
A longer time to expiration will give a call option a higher chance to end up in the money. Therefore, a call option will have a higher value.
2. As the time to expiration becomes longer, an American call option always becomes more valuable....
There is a positive relationship between the value of a call option and time until expiration. True False
Answer true of false, and justify the answer a) In the framework of valuing an option to delay an investment, if the average expected price remains the same, but the probability of facing a low price next period becomes smaller, then the NPV of waiting to invest next period will be higher. True or False b) Any rational investor always prefers a project that gives him, or her, the option to wait to invest next year instead of a project...
7-9 Chapter 13 Risk and the Pricing of Options 471 Factors Affecting Option Prices 7. What is the maximum payoff that a long put option can have? How about a long cal *8. Can a call option be more valuable than the stock it is written on? 9. Why is an American option with a longer time to expiration generally worth more option? than an otherwise identical option with a shorter time to expiration? The Rinemial Ontion Pricing Model
QUESTION 1 (5 points) You own a European call option and an American Call option, each on one share of Smart `R' Us, and each with an exercise price of $80. The current share price is $120 and it is an instant before Smart `R' Us pays dividends by an amount of $10. An instant after the ex-dividend date, the share price would fall to $110, and the two options would have one period until expiration. By expiration date the...
A call option has a strike price of 30 in dollars, and a time to expiration of 0.1 in years. If the stock is trading for 85 dollars, N(d1) = 0.5, N(d2) = 0.4, and the risk free rate is0.04, what is the value of the call option?
A stock is going to go ex-dividend prior to the option expiration date. Prior to expiration, are you more likely to Exercise an American Put prior to the ex-date Exercise a European Call prior the ex-date Exercise an American Call prior the ex-date Exercise a European Call after the ex-date Exercise an American Call after the ex-date
True or False 1.An option buyer exercises only if his profit is positive. 2.An option buyer will not exercise if doing so results in a loss (i.e. if her overall profit is negative). 3.A writer of a put option exercises if her payoff is positive. 4.American options are traded in the US, while European options are traded in Europe. 5.The sum of a call buyer’s profit and a call seller’s profit is always positive. 6.The sum of put buyer and...
Unless far out-of-the money or far in-the-money, for otherwise identical call options, the longer the term to expiration, the lower the price for A. Both European Call Option and American Call options B. American call options, but not European call options. C. Neither European call options nor American call options
1. The profit for a short position in a call option is always negative or zero. (a) True (b) False
true or false: as the bond yield increases, the bond becomes more valuable to the investors and therefore, the price increases.