When an American Call Has Been Exercised Early, Which of the Following

question 11

Multiple Choice

When an American call has been exercised early, which of the following inferences about the stock and option is valid?

• A) The stock must pay dividends after the date of exercise.
• B) The intrinsic value of the option is positive.
• C) The time value of the option is negative.
• D) All of the above.

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Definitions:

Interest Revenue

Income earned from investments, loans, or other interest-bearing assets.

Estimated Bad Debts

Anticipated amounts that customers will not pay the company, typically recorded as an expense.

Realizable Value

The estimated amount that could be received from the sale of an asset in a normal transaction between willing parties.

Cash Discount

A reduction in invoice price given by a seller to a buyer in return for early payment, aimed at accelerating cash inflows.