Discuss how equity can be viewed as an option. Who has the option, and what decision can they make?

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Discuss how equity can be viewed as an option. Who has the option, and what decision can they make?

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Discuss how equity can be viewed as an option. Who has the option, and what decision can they make?

Explanation & AnswerSolution by a verified expert

Explanation

When more information is received regarding the equity then according to the information, decisions taken can be altered and hence equity can be viewed as an option.
 
The management who has taken decisions of equity has an option to change that decision regarding equity.
 
According to the information received, if the project is profitable then its fine but if it will not be able to generate profit then the amount is invested in new projects.

Verified Answer

Equity is a kind of call option as after the more information decision related to equity can be changed.
 
Management has an option to change decisions regarding equity.
 
Decision related to investing in new projects.

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