Time Inconsistency Means

question 2

Multiple Choice

Time inconsistency means

• A) taking different decisions at different times despite facing the same situation.
• B) making policy choices that violate the intertemporal budget constraint.
• C) deciding to do something tomorrow, and then doing something different tomorrow.
• D) adding a random factor to decisions.

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Definitions:

Strike Price

The pre-determined price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Call Premium

The amount by which the call price of a bond or other security exceeds its face value, often applicable when the security is called before maturity.

Out-of-the-money

A term used in options trading referring to an option that has no intrinsic value. For a call option, it means the stock price is below the strike price; for a put option, it means the stock price is above the strike price.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.