Given a Longer-Lived American Call and a Shorter-Lived American Call

question 45

Multiple Choice

Given a longer-lived American call and a shorter-lived American call with the same terms,the longer-lived call must always be worth

• A)at most the value of the shorter-lived call
• B)at least as much as the shorter-lived call
• C)exactly the same as the shorter-lived call
• D)the shorter-lived call discounted to the length of the longer-lived call
• E)none of the above

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Definitions:

Owners' Equity

The residual interest in the assets of a company after deducting liabilities, representing what the owners own outright.

Investment

The process of distributing funds with the goal of earning revenue or gains.

Acid Test Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its quick assets.

Current Liabilities

Short-term financial obligations that are due within a year or within the operating cycle.