- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 8. Pricing and Valuation of Options
- Subject 3. Factors Affecting Option Value
CFA Practice Question
Which of the following makes the early exercise of an American put option less likely?
B. Presence of dividends
C. Sharp decrease in underlying price and volatility
A. Higher risk-free rate
B. Presence of dividends
C. Sharp decrease in underlying price and volatility
Correct Answer: B
The presence of dividends makes the early exercise of American put options less likely. A higher risk-free rate and a large decrease in stock price with a decrease in volatility make the early exercise of American put options more likely.
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