Which of the Following Statements Is False

question 23

Multiple Choice

Which of the following statements is false?

• A) It is tempting to use the Black-Scholes formula to value future growth options, but often there are good reasons why this formula might not price these options correctly.
• B) When a firm has a real option to invest in the future it is known as a growth option.
• C) Because growth options have value, they contribute to the value of any firm that has future possible investment opportunities.
• D) Future growth opportunities can be thought of as a collection of real put options on potential projects.

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Definitions:

Price to Clear

Price to Clear is the market price at which the quantity of goods supplied is equal to the quantity of goods demanded, thereby clearing the market.

Profit Per Unit

The revenue obtained per unit of a product or service sold, minus the cost per unit.

Optimal Output

The level of production that generates the highest possible profit for a firm, taking into account costs and revenue.

Price to Clear

The market price at which the quantity supplied of a good matches the quantity demanded, leading to an equilibrium where there is no surplus or shortage.