Problem 1 Consider IKEA’s return policy: \"If you’ve changed your mind and are n

Question

Problem 1

Consider IKEA’s return policy:

"If you’ve changed your mind and are not entirely satisfied with your purchase, simply return the unused item within 45 days for an exchange or refund."

IKEA’s return policy represents:

a) a European put option written by IKEA.

b) a European call option written by IKEA.

c) an American put option written by IKEA.

d) an American call option written by IKEA.

e) a European put option written by IKEA customers.

f) an American put option written by IKEA customers.

Explanation / Answer

C)

American because it can be returned any day within 45 days. Put option because it is an obligation to buy back the item for IKEA in the 45 days.

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