An American Put Option on a Stock That Pays No

question 6

Multiple Choice

An American put option on a stock that pays no dividends:

• A)May be exercised early if the stock drops sharply before maturity.
• B)Is always exercised early when the the put is deep in-the-money,and the volatility of the stock rises sharply from its initial level.
• C)Is not exercised early unless the growth in the stock is lower than the rate of interest.
• D)Is never exercised early.

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Definitions:

Law Of Experience

Suggests that with increased experience or production, companies can reduce costs and improve efficiency, often referred to as the learning curve.

Unit Costs

The expenditure a business faces for the production, storage, and selling of an individual unit of a given product or service.

Experience Curve

A concept suggesting that the more experience a company gains in producing a product or service, the lower the costs associated with it due to efficiencies.

Product Life Cycle

The stages a product goes through from development and introduction to the market, through growth, maturity, and eventual decline.