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Answer: An increase in time to expiration (T) implies an increase in the option price for a European put on a dividend-paying stock
**Correct answer: D** For the standard cases listed in **A**, **B**, and **C**, longer time to expiration increases option value because it gives the holder more opportunity for favorable price movement and, for American options, more flexibility. However, for a **European put on a dividend-paying stock**, the effect of longer maturity is **not necessarily monotonic**. Dividends can lower the stock price and change the maturity tradeoff, so a longer time to expiration does not always imply a higher put price. Therefore, **D** is the exception.
Author: Manit Arora
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Question-179.2. EACH of the following is NECESSARILY TRUE about relationship between “time to expiration” (T) and option price EXCEPT:
A
An increase in time to expiration (T) implies an increase in the option price for an American call on a non-dividend-paying stock
B
An increase in time to expiration (T) implies an increase in the option price for a European call on a non-dividend-paying stock
C
An increase in time to expiration (T) implies an increase in the option price for an American put on a dividend-paying stock
D
An increase in time to expiration (T) implies an increase in the option price for a European put on a dividend-paying stock
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