Given a longer-lived American call and a shorter-lived American call with the same terms,the longer-lived call must always be worth
A)at most the value of the shorter-lived call
B)at least as much as the shorter-lived call
C)exactly the same as the shorter-lived call
D)the shorter-lived call discounted to the length of the longer-lived call
E)none of the above

Question

Quizplus · Accepted Answer

The longer-lived call has more time to potentially benefit from favorable market conditions, so it must be worth at least as much as the shorter-lived call. Therefore, the best choice is B.

Given a Longer-Lived American Call and a Shorter-Lived American Call