A Put Option Is Currently Selling for $6 with an Exercise

question 48

Multiple Choice

A put option is currently selling for $6 with an exercise price of $50. If the hedge ratio for the put is −0.30, and the stock is currently selling for $46, what is the elasticity of the put?

• A) 2.76
• B) 2.30
• C) −7.67
• D) −2.76
• E) −2.30

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Definitions:

Break-even Point

The level of sales at which total revenues equal total expenses, resulting in no net profit or loss.

Variable Cost

Expenses that change in proportion with the level of activity or production volume, such as materials costs or sales commissions.

Fixed Costs

Expenses that do not change with the level of goods or services produced by a business over a certain period, such as rent, salaries, and loan payments.

High-low Method

A technique in managerial accounting used to estimate variable and fixed costs by analyzing the highest and lowest levels of activity.