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You hold an American call option with a $100 strike price on a stock that sells for $120. Compare the cash flows at expiration from

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You hold an American call option with a $100 strike price on a stock that sells for $120. Compare the cash flows at expiration from (i) exercising the option now and putting the $20 proceeds in a bank account that earns a positive risk-free rate rf > 0 until the expiration date or (ii) waiting until expiration and then deciding whether to exercise, short-selling the stock today, and placing the $120 you receive from the short sale into the same bank account. Does one choice always yield a higher payoff than the other? If so, which? To answer this question, you should consider two possibilities for scenario (ii): the stock price is greater than $100 at expiration, and the stock price is less than $100 at expiration You hold an American call option with a $100 strike price on a stock that sells for $120. Compare the cash flows at expiration from (i) exercising the option now and putting the $20 proceeds in a bank account that earns a positive risk-free rate rf > 0 until the expiration date or (ii) waiting until expiration and then deciding whether to exercise, short-selling the stock today, and placing the $120 you receive from the short sale into the same bank account. Does one choice always yield a higher payoff than the other? If so, which? To answer this question, you should consider two possibilities for scenario (ii): the stock price is greater than $100 at expiration, and the stock price is less than $100 at expiration

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