CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

An American option is more valuable than a European option on the same dividend-paying stock with the same terms because ______
A. the American option can be exercised from date of purchase until expiration but the European option can be exercised only at expiration.
B. the European option contract is not adjusted for stock splits and stock dividends.
C. the European option does not conform to the Black-Scholes model and is often mispriced.
Explanation: It is possible that the stock price reaches its maximum or minimum value during the period from date of purchase to expiration, not just on the expiration date. Only an American option can take this kind of opportunity to make profits by being exercised during this period. So it is more valuable.

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