单选题
There are two different options available with ITM Corporation
common stock as the underlying asset. They each have the same maturity date, a
strike price of $40.00, and are identical in all other ways except, one is a
European call, and the other is an American call. ITM stock has a market value
of $43.75. The American call option is selling for $4.90. For the
European call, which of the following option premiums is most likely?
- A. $4.90.
- B. $5.25.
- C. $4.25.
【正确答案】
C
【答案解析】Both the American and European calls have a strike price of $40.00. Each call is therefore in-the -money by $3.75 ( $43.75 - $40.00). Since they are identical in all ways except when they can be exercised, and since European calls are less flexible than American, their market value, option premium, will most likely be lower. The lower option premium will allow for a higher return on the European option relative to the American, assuming both are held to expiration. This higher return is compensation for the reduced flexibility of the option terms.