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Answer: In the case of American options, C and P, on a dividend-paying stock, put-call parity holds: C + D + K*EXP(-rT) = P + S(0)
The false statement is **A**. For **American options on a dividend-paying stock**, put-call parity does **not** generally hold because early exercise can create differences between the American call and put values. Statements **B**, **C**, and **D** are true.
Author: Manit Arora
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Question 182.5. Each of the following statements is true EXCEPT for (which is the false statement?):
A
In the case of American options, C and P, on a dividend-paying stock, put-call parity holds: C + D + K*EXP(-rT) = P + S(0)
B
In the case of European options, c and p, on a dividend-paying stock, put-call parity holds: c + D + K*EXP(-rT) = p + S(0)
C
While it is never optimal to exercise early a CALL option on a NON-dividend-paying stock, it can be optimal to exercise early a CALL option on a dividend-paying stock; also, it is often optimal to exercise early a PUT option in both cases of a dividend-paying or non-dividend-paying stock
D
In the case of a dividend-paying stock, we can obtain upper and lower bounds for the difference between the price of an American call and an American put (i.e., C - P)
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