The Most Correct Method to Determine the Current Value of Future

question 21

Multiple Choice

The most correct method to determine the current value of future payoffs would be to:

• A)take the discounted expected value at the risk-free rate.
• B)take the expected value using the probabilities.
• C)take the discounted expected value using the risk-neutral probabilities and the risk free rate.
• D)sum the payoffs discounted at the risk free rate.
• E)None of the above.

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Definitions:

Visual Representation

The use of images, diagrams, graphs, or other visual formats to present data or information for easier understanding.

Proportion

A statistical measure that refers to the fraction of the total number of outcomes in a particular category.

Frequency Polygon

A graphical representation of the distribution of a dataset that shows how often each value in the dataset occurs.

Ogive

A graphical representation of the cumulative frequency or cumulative relative frequency on a graph.