What Is the Present Value of a Payment of $250

question 120

Multiple Choice

What is the present value of a payment of $250 one year from today if the interest rate is 4 percent?
A) $240.38

• A) $240.38
• A) None of the above are correct to the nearest cent.
• B) $242.24
• C) $244.40

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Definitions:

Exercise Price

The price at which the holder of an option contract may buy (in the case of a call option) or sell (in the case of a put option) the underlying asset when the option is exercised.

Underlying Asset

The financial asset upon which derivative instruments, such as futures, options, or warrants, are based or derived from.

European Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a set price on a specific expiration date, only exercisable at the end of its term.

Expiration Date

The specific date upon which an options or futures contract becomes void and the holder must execute or relinquish the contract.