Consider Two American Call Options, with Maturities Three Months and Six

question 1

Multiple Choice

Consider two American call options, with maturities three months and six months on the same stock and same strike price. The stock pays dividends in two months time and every quarter thereafter. Which of the following statements is most accurate?

• A) The three-month option must be worth more than the six-month option.
• B) The three-month option must be worth less than the six-month option.
• C) The three-month option must be worth less than the six-month option if the dividend payments remain constant.
• D) The three-month option may be worth more than the six-month option.

---

Definitions:

Preoperational Thinking

A stage in cognitive development where children from about 2 to 7 years of age are able to use language and symbols but not capable of logical reasoning.

Formal Operational Thinking

A stage in Piaget's theory of cognitive development where individuals develop the ability to think abstractly, logically, and systematically.

Overtly Physical Schemas

Cognitive structures that involve understanding the world through physical interaction and movement, often related to early childhood development.

Spatial Perspective Taking

The cognitive ability to understand and interpret the spatial relations between objects from different viewpoints.