The most correct method to determine the current value of future payoffs would be to:
A)take the discounted expected value at the risk-free rate.
B)take the expected value using the probabilities.
C)take the discounted expected value using the risk-neutral probabilities and the risk free rate.
D)sum the payoffs discounted at the risk free rate.
E)None of the above.

Question

Quizplus · Accepted Answer

The most correct method to determine the current value of future payoffs is to take the discounted expected value using the risk-neutral probabilities and the risk-free rate. This method accounts for the expected return and risk of the underlying asset and provides a fair value estimation.

The Most Correct Method to Determine the Current Value of Future