In a qs which contains options at for eg 3 different exercise prices,do we have to perform the calculations for all 3 exercise prices or just take the one which would give the lowest rate(most favorable)to the co.?
Thanks
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Options
12y ago#1If you have the time then you should do the calculations for all of them (otherwise how will you know which one ends up most favourable?).
The main thing for the marks, however, is to prove that you understand how options work (even if you do not have the time to do all of them).
Cant we just assume that the one which is at the lowest int rate is the best(ignoring the premiums payable)and using that int rate for the calculations?
12y ago#3No, because the effective rate could end up being higher because of the premium.
Thanks alot Sir.
12y ago#5You are very welcome :-)
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