When Moving from Valuing an Option on a Non-Dividend Paying

question 2

Multiple Choice

When moving from valuing an option on a non-dividend paying stock to an option on a currency which of the following is true?

• A) The risk-free rate is replaced by the excess of the domestic risk-free rate over the foreign risk-free rate in all calculations
• B) The formula for u changes
• C) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate for discounting
• D) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate when p is calculated

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Definitions:

Temporal Discounting

A cognitive bias where people tend to value immediate rewards more highly than future rewards, often leading to short-sighted decision-making.

Suicide Notes

Written messages left by individuals who intend to take their own lives, often providing reasons for their action or expressing final thoughts.

Emotional Distress

A state of emotional suffering characterized by symptoms such as anxiety, depression, and agitation, often as a response to stressors or trauma.

Self-Awareness

Being aware of one's own identity, sentiments, intentions, and aspirations.