What Is the Lower Bound of a European Call on a Futures

question 42

Multiple Choice

What is the lower bound of a European call on a futures where f₀ is the futures price and X is the exercise price? Assume f₀ is greater than X.

• A)the difference between f₀ and X
• B)zero
• C)the present value of the difference between f₀ and X
• D)the ratio of f₀ to X
• E)none of the above

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Definitions:

Common Shareholders

Individuals or entities that hold common stock in a corporation, entitling them to dividends and voting rights, but placing them last in priority for company assets in case of liquidation.

Dissolve

To formally end or terminate an entity, such as a corporation, partnership, or marriage, through legal means.

Outstanding Common Shares

The total number of common shares of a corporation that are issued and currently held by shareholders.

Total Equity

The total net value of a company, calculated as the difference between its total assets and total liabilities.