The value of an otherwise identical American call option is ________ if the exercise date is ________.
A)higher, longer
B)higher, closer
C)lower, longer
D)None of the above.

Question

Quizplus · Accepted Answer

The value of an American call option increases as the time to expiration (exercise date) increases. This is because the longer the time available to exercise the option, the greater the probability that the underlying asset price will increase, which increases the potential profit from exercising the option. Therefore, if the exercise date is longer, the value of an otherwise identical American call option is higher.

The Value of an Otherwise Identical American Call Option Is