Reading 73: Option Markets and Contracts - LOS k ～ Q6-10

答案和详解如下：

6.Which of the following statements about options is FALSE?

A)   If an American option is exercised at expiration, its value will be less than that of a European option.

B)   For put options, the higher the strike price relative to the stock's underlying price, the more the put is worth.

C)   For call options, the lower the strike price relative to the stock's underlying price, the more the call option is worth.

D)   Option prices are generally higher the longer the time until the option expires.

The correct answer was A)

The American option cannot be worth less than the European option.

7.ABEX Corporation common stock is selling for $50.00 per share. Both an American call option and a European call option are available on ABEX common, and each have identical strike prices and expiration dates. Which of the following statements concerning these two options is TRUE?

A)   Because the American and European options have identical terms and are written against the same common stock, they will have identical option premiums.

B)   The greater flexibility allowed in exercising the American option will normally result in a higher market value relative to an otherwise identical European option.

C)   The American option will have a higher option premium, because the American security markets are larger than the European markets.

D)   The European option will normally have a higher option premium because of their relative scarcity compared to American options.

The correct answer was B)

Trading in European options is considerably less than trading in American options, because demand for them is much lower. This is due to their relative inflexibility regarding when they can be exercised. The greater exercising flexibility of American options gives them increased value to traders, which normally results in a greater market value relative to an otherwise identical European option.

8.Compared to European call options on an asset with no cash flows, an American call option:

A)   will have a lower, lower bound on its price.

B)   will have the same lower bound on its price.

C)   will have a higher, lower bound on its price.

D)   may have a higher or lower, lower bound on its price depending on the riskless rate of interest.

The correct answer was B)

Since early exercise of an American call option on an asset with no cash flows never generates more than the minimum value of the European option, early exercise is never profitable and the lower bounds on prices of both types of options are the same.

9.Compared to European put options on an asset with no cash flows, an American put option:

A)   will have a higher, lower bound on its price.

B)   will have a lower, lower bound on its price.

C)   will have the same lower bound on its price.

D)   may have a higher or lower, lower bound on its price depending on the riskless rate of interest.

The correct answer was A)

Early exercise of an in-the-money American put option on an asset with no cash flows can generate more, X- S, than the minimum value of the European option, X/(1+R)^T - S. The possibility of profitable early exercise leads to a higher, lower bound on the price of the American put option.

10.Which of the following statements about the early exercise of an option is FALSE? For an American:

A)   call option on an asset with positive cash flows, early exercise is sometimes profitable.

B)   call option, on an asset with no cash flows, early exercise can be profitable if the option is far in the money.

C)   put option on an asset with no cash flows, early exercise is sometimes optimal.

D)   put option on a dividend paying stock, early exercise may or may not be profitable.

The correct answer was B)

Early exercise of an American call option on an asset with no cash flows is never profitable, they are worth more ‘alive than dead’.