Hall, Inc, Enters into a Call Option Contract with Bennett Investment

question 3

Multiple Choice

Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $400 for the call option. The $400 paid by Hall, Inc., to Bennett Investment is referred to as the

• A) option premium.
• B) notional amount.
• C) strike price.
• D) intrinsic value.

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Definitions:

Crown

The part of a tooth that is visible above the gum line, or the top part of a plant including the branches and leaves.

Tooth

A hard, calcified structure found in the jaws of many vertebrates, used for biting and chewing food.

Pepsin

An enzyme produced in the stomach that initiates digestion of protein.

Polypeptides

Chains of amino acids linked by peptide bonds, serving as the building blocks for proteins.