Which of the Following Statements Is True When Comparing the Payoffs

question 10

Multiple Choice

Which of the following statements is true when comparing the payoffs at maturity of a long forward contract with a long position in a call option, assuming the strike price of the option is the same as the delivery price in the forward contract?

• A) The maximum (i.e., best-case) payoff of the forward contract exceeds that of the option.
• B) The minimum (i.e., worst-case) payoff of the forward contract exceeds that of the option.
• C) The minimum payoff of the option exceeds that of the forward contract.
• D) The maximum payoff of the option exceeds that of the forward contract.

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Definitions:

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