Why Does a Discounted Cash-Flow Approach to Options Valuation Not

question 23

Multiple Choice

Why does a discounted cash-flow approach to options valuation not work?

• A)It is impossible to estimate expected cash flows.
• B)One cannot find the appropriate interest rate for an infinitely small interval.
• C)Finding the opportunity cost of capital is impossible as the risk of options changes every time the stock price moves.
• D)The strike price of options changes.

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Definitions:

Major Components

The primary elements or parts that make up a product or system, critical for its operation or functionality.

Overall Goal

The primary, overarching aim or objective that an organization or individual strives to achieve, guiding decision-making and strategy formulation.

Global Complementation Strategy

An approach in international business where a company strategically places different parts of its production in different countries to maximize efficiency and minimize costs.

Toyota

A global automotive manufacturer known for its innovative production techniques, such as the Toyota Production System, which emphasizes efficiency, quality, and continuous improvement.