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11.Which of the following describes a situation where an American put option on a stock becomes more likely to be exercised early?
A.Expected dividends increase
B.Interest rates decrease
C.The stock price volatility decreases
D.All of the above
A.Expected dividends increase
B.Interest rates decrease
C.The stock price volatility decreases
D.All of the above
Answer: C
As the volatility of the option decreases the time value declines and the option becomes more likely to be exercised early. In the case of A and B, time value increases and the option is less likely to be exercised early.
As the volatility of the option decreases the time value declines and the option becomes more likely to be exercised early. In the case of A and B, time value increases and the option is less likely to be exercised early.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015