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.

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