Which of the Following Statements Is True of American Options

question 24

Multiple Choice

Which of the following statements is true of American options?

• A) The lower bound on the price of a call option on stock is the price of the stock.
• B) The lower bound on the price of a call option on stock could be zero.
• C) To prevent arbitrage, the value of the call today must be less than the stock price minus the exercise price.
• D) After expiration, an option on stock will be worth more than the option's intrinsic value.
• E) The upper bound on the price of a call option is its intrinsic value.

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Definitions:

ΔI

Signifies a change in a variable, commonly used in mathematics and physics to denote a change in intensity or other measurable factors.

Standard Stimulus

A specific, unchanging stimulus used as a basis for comparison in experimental investigations.

Jnd

Stands for Just Noticeable Difference, the minimal change in a stimulus that can just barely be detected by an organism.

Weber Fraction

A concept in psychophysics that describes the proportionate relationship between the magnitude of a physical stimulus and its perceptible increment needed to detect a difference.