Firms spend an increasing amount of time evaluating real options, which are:
A) options on real assets such as an option to abandon.
B) call and put options traded on organized exchanges.
C) call options such as warrants and convertible bonds.
D)put options such as those held by shareholders of a firm with financial leverage.

Question

Quizplus · Accepted Answer

Real options refer to options on real assets, such as the option to delay, expand, or abandon a project. Firms spend increasing amounts of time evaluating these options to make optimal investment decisions. Options traded on exchanges (B) and call options such as warrants and convertible bonds (C) are financial options, not real options. Put options held by shareholders of firms with financial leverage (D) are also not real options.

Firms Spend an Increasing Amount of Time Evaluating Real Options