A Call Option Has an Exercise Price of $150

question 47

Multiple Choice

A call option has an exercise price of $150. At the option expiration date, the stock price could be either $100 or $200. Which investment would combine to give the same payoff as the stock?

• A)Lend PV of $100 and buy two calls.
• B)Lend PV of $100 and sell two calls.
• C)Borrow $100 and buy two calls.
• D)Borrow $100 and sell two calls.

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Definitions:

Natural Monopoly

A market condition where a single firm can supply the entire market's demand for a good or service more efficiently than multiple competing firms due to high fixed or startup costs associated with the industry.

Economies of Scale

The cost advantage achieved by an increase in production, leading to a reduction in the per unit cost.

Capital Facilities

Assets such as buildings, utilities, and major machinery which are essential for the production process in an organization or for providing services.

Laissez-faire Perspective

An economic philosophy advocating for minimal government intervention in the market, allowing individuals to act according to their own self-interests.