Which of the Following Is True

question 20

Multiple Choice

Which of the following is true?

• A) An American call option on a stock should never be exercised early
• B) An American call option on a stock should never be exercised early when no dividends are expected
• C) There is always some chance that an American call option on a stock will be exercised early
• D) There is always some chance that an American call option on a stock will be exercised early when no dividends are expected

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Definitions:

Compounded Monthly

Interest calculation method where the interest earned is added to the principal each month, resulting in interest on interest.

Monthly Deposits

Regular payments deposited into a financial account or investment plan on a monthly basis, typically to save or earn interest over time.

Investment

The allocation of resources, usually money, to generate income or profit, including purchasing assets or securities.

Compounded Continuously

Compounded continuously refers to the mathematical limit that compound interest can reach if it is calculated and added to the principal balance continuously, leading to exponential growth.