The Value of a Call Option That Is Expected to Expire

question 357

Multiple Choice

The value of a call option that is expected to expire in the money can be expressed as:

• A) C0 = E - S0/(1 + Rf)t.
• B) C0 = S0 - E/(1 + Rf)t.
• C) C0 = (S/C)(C0) + S0/(1 + Rf)t.
• D) C0 = (S/C)(C0) - E/(1 + Rf)t.
• E) C0 = E - S1.

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Definitions:

Future Value

A future specified date's asset or cash worth that is equivalent to a predetermined sum currently.

Present Value

The immediate value of a prospective sum of money or succession of payments, with a certain rate of return.

Compound Interest

Compound interest refers to the interest that is computed on both the initial principal amount and the interest that has been accumulated from previous periods for either a deposit or a loan.

Future Value

The value of an investment or payment at a specific future date, considering factors like interest rates or earnings.