
Option: Option refers to the right available to invest or disinvest in a particular business or project but without any obligation to make such investment decision at a fixed price on some future date. Therefore, option is taken only when it improves the
To Explain: The holder of an option has to exercise the option or not.

Answer to Problem 1CC
No, the holder of an option does not have to exercise it as an option is not an obligation to invest in a project but the right available to make such investment decision. The firm will invest only when the net present value will increase or is positive.
Explanation of Solution
The holder of an option have right to use his/her option to invest in any project, but it is not a compulsion to exercise the right. Therefore, the holder may or may not exercise his/her option.
So, the holder of an option does not have to exercise it.
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Chapter 21 Solutions
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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