If the Interest Rate Is R and Will Remain R

question 16

Multiple Choice

If the interest rate is r and will remain r forever, then a bond that will pay 75 dollars a year forever, starting one year from now, is worth how much today?

• A)75/(1 + r)dollars.
• B)75(1 + r)dollars.
• C)75/(1 + r + r² +.......+ r ⁿ +.......)dollars.
• D)75/r dollars.
• E)None of the above.

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Definitions:

Exercise Price

The cost at which an options contract holder has the right to purchase (in the case of a call option) or sell (with a put option) the base asset.

Put Option

It's a financial arrangement granting someone the choice, but excluding the duty, to dispose of an allocated quantity of an essential asset at a certain value within an allotted interval.

Buyer

An individual or entity that purchases goods or services in a transaction.

Strike Price

The specified price at which an options contract can be exercised.