An American Put Option on a Stock That Pays No

question 8

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:

Limited Warranty

A warranty with certain conditions and limitations on the parts, time, type of defect, or other factors warrantied.

Warranty

An assurance, either express or implied, by one party that the other party can rely on its representations of fact; in sales, a binding promise regarding a product in the event that the product does not meet the manufacturer’s or seller’s promises.

Written Warranty

A documented guarantee provided by a manufacturer or seller, detailing the conditions under which a product can be returned, replaced, or repaired.

Magnuson-Moss Act

A federal law that governs warranties on consumer products to protect buyers from deceptive warranty practices.