If the Present Value of $1 Received N Years from Today

question 69

Multiple Choice

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

• A)$1.3855
• B)$2.594
• C)$1.701
• D)Not enough information is given to solve the problem.

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Definitions:

Binomial Option Model

A mathematical model used to price options by breaking down the time to expiration into potentially infinite segments or steps.

Subintervals

Divisions within a larger interval, often used in mathematics to partition an interval into smaller segments.

Implied Volatility

The predicted future movement in a security's price as inferred from the pricing of its options in the market.

Exercise Prices

The price at which the holder of an option contract can buy (call) or sell (put) the underlying asset.