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

question 12

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 is replaced by the excess of the domestic risk-free rate over the foreign risk-free rate for discounting
• D) The risk-free rate is 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:

Erythropoietin

A hormone produced primarily by the kidneys that regulates the production of red blood cells in the bone marrow.

Erythrocytes

Another term for red blood cells, responsible for transporting oxygen and carbon dioxide in the bloodstream.

Blood Pressure

The pressure of circulating blood against the walls of blood vessels, an important indicator of cardiovascular health.

Chromosomes

Chromosomes are long, thread-like structures made of DNA and proteins found in the nucleus of most living cells, carrying genetic information in the form of genes.