The Difference Between an American Call and a European Call

question 76

Multiple Choice

The difference between an American call and a European call is that the American call:

• A)has a fixed exercise price while the European exercise price can vary within a small range.
• B)is a right to buy while a European call is an obligation to buy.
• C)has an expiration date while the European call does not.
• D)is written on 100 shares of the underlying security while the European call covers 1,000 shares.
• E)can be exercised at any time up to the expiration date while the European call can only be exercised on the expiration date.

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Definitions:

Long-term Lease Obligation

A financial commitment that involves leasing an asset for a long-term period, noted on the balance sheet as a liability.

Capital Lease

A Capital Lease is a lease agreement that has the characteristics of a purchase agreement for accounting purposes.

Present Value

The current value of a future amount of money or stream of cash flows given a specified rate of return.

Executory Costs

Refers to the costs related to executing a lease that are neither initially capitalized nor recognized in the income statement immediately, typically involving future operating expenses under a lease agreement.