Chapter 11, Problem 11.27B.1P

To determine

Introduction: Derivative is the contract between the parties whose value is decided upon the underlying asset or set of assets such as bonds, interest rates, currencies, indexes, stocks, etc.

Underlying: It is the financial asset which is a base of the derivatives on which the agreement is done in derivatives. It can be price or rate of asset or any liability like bond. To choose:The correct option.