Five-Year-Old Billy Is Working on the "3 Mountain Problem

question 44

Multiple Choice

Five-year-old Billy is working on the "3 Mountain Problem." When he is asked to point to the picture that shows what the doll can see,he will most likely

• A) choose the correct picture and explain why he chose it.
• B) choose the one that shows what he is looking at.
• C) choose the correct picture but not be able to explain why.
• D) know the correct one is different from his but not know which one to pick.

---

Definitions:

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specified time.

Premium

Premium often refers to the additional cost above the normal or nominal amount, in contexts such as insurance payments, above-par bond prices, or the price paid for options contracts.

Lookback Options

A type of option which allows the holder to "look back" over the time period of the option to select a price that is most advantageous for exercising their option.

Underlying Asset

Refers to the financial instrument (e.g., stock, bond, commodity) on which a derivative's value is based.