For which of the following options might it be rational to exercise before maturity? Explain briefly why or why not.

a. American put on a non-dividend-paying stock.

b. American call—the dividend payment is $5 per annum, the exercise price is $100, and the interest rate is 10%.

c. American call—the interest rate is 10%, and the dividend payment is 5% of future stock price. ( Hint: The dividend depends on the stock price, which could either rise or fall.)

INTERMEDIATE AppendixLO1