Financial Options Are Easier to Value Than Real Options for Each

question 17

Multiple Choice

Financial options are easier to value than real options for each of the following reasons EXCEPT

• A) Exercise prices on financial options are contractually written on a single financial price that is readily observable in the financial market.
• B) Markets for real assets have fewer imperfections than financial markets.
• C) Real asset markets typically are less competitive than financial markets.
• D) Each of the above is a reason why financial options are easier to value.
• E) None of the above is a reason why financial options are easier to value.

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Definitions:

Desired Sum

An intended total amount or goal that one aims to achieve through calculation or accumulation.

Single Sum

A financial calculation used to find the future value of a lump sum investment.

Five-Year Period

A span or timeframe that extends for five consecutive years.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows or the rate used by financial institutions for interbank lending and borrowing.