What Is the Lower Bound of a European Call Option

question 22

Multiple Choice

What is the lower bound of a European call option on a futures contract 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:

Proper Tender

The act of presenting an exact amount of money in the appropriate form as payment for a debt or obligation.

Endorsers Discharged

Refers to the situation where endorsers (persons who sign documents, typically negotiable instruments, to endorse them) are released from their obligations under the instrument.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a specified sum of money either on demand or at a specified future date.

Discharged Liability

Refers to a debt or obligation that has been fulfilled, canceled, or extinguished, relieving the debtor of any further responsibility.