Consider Two European Call Options,with Maturities Three Months and Six

question 6

Multiple Choice

Consider two European call options,with maturities three months and six months on the same stock and same strike price.The stock pays dividends in two months time and every quarter thereafter.Which of the following statements is most accurate?

• A)The three-month option must be worth more than the six-month option.
• B)The three-month option must be worth less than the six-month option.
• C)The three-month option must be worth less than the six-month option if the dividend payments remain constant.
• D)The three-month option may be worth more than the six-month option.

---

Definitions:

Depression

A prolonged and severe downturn in economic activity, characterized by significant unemployment, declining output, and deflation.

Interest Rate

The component of a loan levied as interest to the borrower, usually characterized as an annual percentage of the outstanding loan value.

Aggregate Demand

Total economic interest in goods and services, assessed at a uniform price level throughout a specific period.

Aggregate Supply

The total supply of goods and services produced within an economy at a given overall price level and in a given time period.