Which of the following is true for a one-year call option on a stock that pays dividends every three months?
A. It is never optimal to exercise the option early
B. It can be optimal to exercise the option at any time
C. It is only ever optimal to exercise the option immediately after an ex-dividend date
D. None of the above
D
When there are dividends it is sometimes optimal to exercise immediately before an ex-dividend date, but it is never optimal to exercise at other times. None of the first three answers are therefore correct.
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