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Explanation:
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.
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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