Which of the Following Represents a Subjective Probability

question 35

Multiple Choice

Which of the following represents a subjective probability?

• A) The probability of rolling a 2 on a single die is one in six.
• B) Based on a conducted experiment, the probability of tossing a head on an unfair coin is 0.6.
• C) A skier believes she has a 10% chance of winning a gold medal.
• D) Based on past observation, a manager believes there is a three-in-five chance of retaining an employee for at least one year.

Understand the components and calculations of intrinsic and time values of options.

Identify factors that influence the value of call and put options.

Explain the effects of interest rates and volatility on option pricing.

Describe the fundamentals of the Black-Scholes option-pricing formula and its applicability to different types of options.

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Definitions:

Months

Units of time measurement that constitute roughly one-twelfth of a year, used in planning and tracking various financial activities.

Interest

The cost of borrowing money or the payment received for lending money, usually expressed as a percentage of the principal.

Investment

Investment involves allocating resources, usually money, with the expectation of earning an income or profit over time.

Days

Units of time measurement equating to approximately 24 hours, representing the approximate period of the Earth's rotation on its axis.