Consider a Housing Development Built near an Existing Airport

question 101

Multiple Choice

Consider a housing development built near an existing airport.After the houses are occupied,homeowners complain that the airport imposes a negative externality on them and it should be moved or otherwise limited.Is the airport a negative externality?

• A) No, the airport was there first.
• B) No, if the original property values reflect the costs imposed by the airport.
• C) No, airports are government entities and therefore don't impose costs on individuals.
• D) Yes, the airport's noise should be curtailed for the well-being of the homeowners.

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Definitions:

Implied Volatility

The market's forecast of a likely movement in a security's price, often derived from the price of its options.

Binomial Option Model

A mathematical model used to price options by breaking down the option's life into discrete time intervals and calculating the value at each step.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage on a loan or investment.

Option Price

The price at which a specific derivative contract can be exercised, representing the cost to buy (call option) or sell (put option) an underlying asset at the strike price.