The Current Market Price of a Share of Coca Cola

question 68

Multiple Choice

The current market price of a share of Coca Cola stock is $50. If a put option on this stock has a strike price of $45, the put

• A) is out of the money.
• B) is in the money.
• C) sells for a lower price than if the market price of Coca Cola stock is $40.
• D) is out of the money and sells for a lower price than if the market price of Coca Cola stock is $40.
• E) is in the money and sells for a lower price than if the market price of Coca Cola stock is $40.

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Definitions:

Absorption Costing

An accounting method that assigns all manufacturing costs, both variable and fixed, to products, thereby impacting the inventory valuation on the balance sheet.

Net Operating Income

The profit a company makes from its operations, calculated as total revenue minus operating expenses, excluding taxes and interest.

Variable Costing

An accounting method that only includes variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Absorption Costing

A product costing technique that adds up all manufacturing expenses — direct materials, direct labor, variable, and fixed overheads — into the comprehensive cost of the product.