Which One of the Following Statements Is Correct Concerning the Payback

question 349

Multiple Choice

Which one of the following statements is correct concerning the payback period?

• A) An investment is acceptable if its calculated payback period is less than some pre-specified period of time.
• B) An investment should be accepted if the payback is positive and rejected if it is negative.
• C) An investment should be rejected if the payback is positive and accepted if it is negative.
• D) An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.
• E) An investment should be accepted any time the payback period is less than the discounted payback period, given a positive discount rate.

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Definitions:

Exercise Price

The predetermined price at which the holder of an option can buy or sell the underlying asset.

American Put Option

A financial contract that gives the holder the right to sell a specified amount of an underlying asset at a predetermined price before or at the expiration date.

Strike Price

The fixed price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.

Call Pays

Call pays refers to the financial transactions or payments made when the issuer exercises a call option on a bond, paying off the principal and any accrued interest before the maturity date.