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All main topics / Finance & Investment / Derivatives / Derivatives
9.A stock is expected to return 10% when the risk-free rate is 4%. What is the correct discount rate to use for the expected payoff on an option in the real world?
C.More than 10%
D.It could be more or less than 10%
Answer: D

The correct answer is D. There is no easy way of determining the correct discount rate for an option’s expected payoff in the real world. For a call option the correct discount rate in the real world is often quite high and for a put option it is often quite low (even negative). The example in the text illustrates this
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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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