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Definition: Exercise

Exercise means executing an option available to an investor or taking the opportunity provided by an investment or security. This term is usually used with respect to options.

When the option holder actually executes his right to buy/sell an asset at a predetermined price, he said to be exercising the option. An investor will exercise an option if it results in profit.

An investor may exercise other types of options like delay option – delaying a project to gain more certainty about cash flows; or abandonment option – abandoning a project mid- way if it will result in loses and so on. An investor may exercise the right to convert his convertible securities to common equity.



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