A Forward-Start Option May Be Viewed as Path-Independent Because

question 36

Multiple Choice

A forward-start option may be viewed as path-independent because

• A)The features of the option when it comes to life depend on the price of the underlying at that point but not on the path taken to reach that price.
• B)The payoff of the forward-start on its maturity date does not depend on any features of the price path of the underlying from the date of purchase of the option.
• C)A forward start option always starts irrespective of the path taken to the forward start date.
• D)Only the strike price of the option is unknown at the time of entering into the option.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specified rate of return.

Capital Cost Allowance (CCA)

A tax deduction that Canadian businesses can claim for the depreciation of tangible and intangible assets.

Manufacturing Equipment

Manufacturing equipment refers to the machinery and tools used in the process of producing goods or handling materials.

Labour And Materials

The costs associated with the workforce (labour) and the raw materials used in the production of goods and services.