QUESTION 27 The following American call options all have an exercise price of $8.00. Assuming the...

Question

Question

QUESTION 27

The following American call options all have an exercise price of $8.00. Assuming the risk-free interest rate is the same for all maturity, which one is the most valuable?

a.

	Spot price of underlying	Term to maturity
Option A	$10.00	120 days

b.

	Spot price of underlying	Term to maturity
Option B	$11.00	15 days

c.

	Spot price of underlying	Term to maturity
Option C	$12.00	150 days

Answer 1

Answer #1

Answer:

b.

	Spot price of underlying	Term to maturity
Option B	$11.00	15 days

This option has the highest net present value.

Answer 2

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