Some of the most common applications of real options are with property and insurance.A real estate option grants the holder the right to buy or sell a piece of property at an established price sometime in the future.If the price of the property goes ________,the owner of the option is likely to buy it.If the market value of the property ________ the strike price,the option holder is unlikely to execute the purchase.
A) down; goes above
B) down; drops below
C) up; drops below
D) up; goes above

Question

Quizplus · Accepted Answer

Some of the most common applications of real options are with property and insurance. A real estate option grants the holder the right to buy or sell a piece of property at an established price sometime in the future. The actual market price of the property may rise above the established (or strike) price or the market value may sink below the strike price. If the price of the property goes up, the owner of the option is likely to buy it. If the market value of the property drops below the strike price, the option holder is unlikely to execute the purchase. In the latter circumstance, the option holder has limited his or her loss to the cost of the option but during the life of the option retains the right to participate in whatever the upside potential might be.

Some of the Most Common Applications of Real Options Are