The Major Difference Between Options on Real Assets and Options

question 16

Multiple Choice

The major difference between options on real assets and options on financial assets is that options on:

• A) financial assets are costly.
• B) financial assets have a higher probability of positive payoff.
• C) real assets are implicit, rather than explicit.
• D) real assets are not influenced by price volatility.

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Definitions:

Special Order

A one-time order or contract that is outside of a company’s normal production or service offerings, often requiring special terms.

Variable Cost

Costs that vary directly with the level of production or volume of output.

Fixed Manufacturing Overhead

Costs associated with manufacturing that do not vary with the level of production, such as rent, salaries of permanent staff, and depreciation of factory equipment.

Constrained Resource

A limited resource within a production or project environment that restricts the output or completion time.