You Purchased Eight LJK Call Option Contracts with a Strike

question 416

Multiple Choice

You purchased eight LJK call option contracts with a strike price of $42.50 when the option was quoted at $.65. The option expires today when the value of LJK stock is $43.16. Ignoring trading costs and taxes, what is the total profit or loss on your investment?

• A) $.33
• B) $2.40
• C) $8.00
• D) $12.50
• E) $14.00

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Definitions:

Accounting Standards for Private Enterprises

Specific accounting principles and guidelines meant for the financial reporting of privately-held companies, differing from those for publicly traded companies.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee’s profits or losses.

Journal Entries

Records of financial transactions in the accounting system.

Impairment Loss

The amount by which the carrying amount of an asset exceeds its recoverable amount, leading to a decrease in the asset's value on the financial statements.