When Defining a Change in Measure,a Redefining of the Units

question 18

Multiple Choice

When defining a change in measure,a redefining of the units in which a payoff is measured is called:

• A) Brownian motion
• B) Change of numeraire
• C) Stochastic discount factor
• D) Utility function

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Definitions:

Relevant Discount Rate

The interest rate used to convert future payments or receipts into their present value, often reflecting the risk associated with the cash flows.

Salvage Value

The estimated resale value of an asset at the end of its useful life, reflecting what a company expects to recover, less disposal costs, once an asset is no longer needed for business operations.

Straight-Line Method

A method of calculating depreciation or amortization by evenly spreading the cost of an asset over its useful life.

Net Equipment Capital Cost

The total cost of acquiring equipment for business operations, minus any salvage value or depreciation.