Which of the following is the lowest possible value of an American call on a stock with no dividends? A)Max[0,S₀ - X(1 + r)^-T] B)S₀ C)Max(0,S₀ - X) D)Max[0,S₀ (1 + r)^-T - X] E)none of the above

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Quizplus · Accepted Answer

The lowest possible value of an American call on a stock with no dividends is Max[0,S₀ - X(1 + r)^-T]. This is because the call option gives the holder the right, but not the obligation, to buy the stock at the strike price X on or before the expiration date T. If the stock price S₀ is less than X(1 + r)^-T, then the call option is worthless because the holder can buy the stock at a lower price in the market.

Which of the Following Is the Lowest Possible Value of an American