What Should the Continuous Dividend Yield Be Replaced by When

question 12

Multiple Choice

What should the continuous dividend yield be replaced by when options on an exchange rate are valued using the formula for an option of a stock paying a continuous dividend yield?

• A)The domestic risk-free rate
• B)The foreign risk-free rate
• C)The foreign risk-free rate minus the domestic risk-free rate
• D)None of the above

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Definitions:

Cost

The value, measured in monetary terms, required to gain something or what is spent in order to buy, make, or achieve something.

Level Of Activity

A measure of the volume of production or operations, often influencing costs and profits in businesses.

Economic Plausibility

The degree to which economic theories or assumptions are realistic and make sense in real-world conditions.

Regression Line

A statistical tool used to describe the relationship between two variables, predicting the value of a dependent variable based on the value of an independent variable.