Is the same true of a european call option

Reference no: EM131237095

1. Give two reasons why the early exercise of an American call option on a non-dividendpaying stock is not optimal. The first reason should involve the time value of money. The second should apply even if interest rates are zero.

2. ‘‘The early exercise of an American put is a trade-off between the time value of money and the insurance value of a put.'' Explain this statement.

3. Why is an American call option on a dividend-paying stock always worth at least as much as its intrinsic value. Is the same true of a European call option? Explain your answer.

Reference no: EM131237095

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