Which of the following is an example of a real option?
A)The option to abandon a project is a real option.
B)A call option to abandon a project is a real option.
C)A put option to sell a common stock is a real option.
D)None of the above are real options.

Question

Quizplus · Accepted Answer

A real option is the right, but not the obligation, to take a particular action in the future. Option A, the option to abandon a project, fits this definition as it provides the company with the ability to choose whether or not to continue with the project at a later date. Option B, a call option to abandon a project, is not a real option as it is a financial derivative that gives the holder the right, but not the obligation, to buy a certain asset or security. Option C, a put option to sell a common stock, is also not a real option as it is a financial derivative that gives the holder the right, but not the obligation, to sell a certain asset or security. Therefore, the correct answer is A.

Which of the Following Is an Example of a Real