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Which of the following are components of financial options and also map to value from flexibility? I.Time to expiration. II.Forgone cash flows. III.Uncertainty about the value of the underlying asset. IV.Forward rates.


A) I and II only.
B) I and III only.
C) I,II,and III only.
D) I,II,III,and IV.

E) A) and B)
F) None of the above

Correct Answer

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Valuation based on decision tree analysis (DTA )should discount both components of the contingent cash flows using the risk-free rate.

A) True
B) False

Correct Answer

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