John Is Willing to Give Up 2 Apples Tomorrow to Get

question 158

Multiple Choice

John is willing to give up 2 apples tomorrow to get one apple today, whereas Bill is willing to give up only 1.5 apples tomorrow to get one apple today. It follows that

• A)John has a higher rate of time preference than Bill, because he is willing to give up more tomorrow to get something today.
• B)Bill has a higher rate of time preference than John, because he is willing to give up less tomorrow to get something today.
• C)if we factor in the price of apples, John and Bill (probably) have the same rate of time preference.
• D)Bill has a lower rate of time preference than John, because he is willing to give up more tomorrow for something today.
• E)John has a lower rate of time preference than John, because he is willing to give up more tomorrow to get something today.

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Definitions:

Underlying Stock

The stock that must be delivered when a derivative contract, like an option or futures contract, is exercised.

Initial Cost

The initial expenditure involved in purchasing an asset or starting a project.

Exercise Price

The established price at which an option holder may execute the purchase (in a call option scenario) or sale (when dealing with a put option) of the related security or commodity.

European Call Option Delta

A measurement of the sensitivity of a European call option's price to a change in the price of the underlying asset.