Current option price is added to present value of portfolio for calculating_________?
Correct answer: B. Current value of stock
- A. Future value of portfolio
- B. Current value of stock
- C. Future value of stock
- D. Present value of portfolio
Explanation
Under the option-pricing relationship used here, adding the current call-option price to the present value of the related portfolio gives the current value of the stock. This reflects the payoff equivalence between the stock and the option-based portfolio.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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