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 net present value of the business To Explain: The holder of an option has to exercise the option or not.

Question

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Answer 1

Question

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

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Students have asked these similar questions

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Answer 2

Question

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

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Answer 3

Question

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

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Answer 4

Question

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

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Answer 5

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

Answer 6

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Expert Solution & Answer

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.

Conclusion

So, the holder of an option does not have to exercise it.

Answer 7

Chapter 21, Problem 1CC

Summary Introduction

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 net present value of the business

To Explain: The holder of an option has to exercise the option or not.

Answer 8

Expert Solution & Answer

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.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

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.