In what way is a loan similar to an option?
Ans. Loan is a lending of money to a borrower with a promise to pay on a predetermined date. Option is selling the underlying asset at a pre-specified price on or before a pre specified date. The buyer of the option pays a price upfront to the seller of the option. It is called option premium. Loan gives income to lender in the form of interest and option gives income to the lender in the form of option premium. Both are ways of arranging funds with cost to the borrower and income to the lender
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