A Call Option Has an Exercise Price of $100

question 14

Multiple Choice

A call option has an exercise price of $100. At the final exercise date, the stock price could be either $50 or $150. Which investment would combine to give the same payoff as the
Stock?

• A) Lend PV of $50 and buy two calls
• B) Lend PV of $50 and sell two calls
• C) Borrow $50 and buy two calls
• D) Borrow $50 and sell two calls

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Definitions:

Depreciation Tax Shield

The reduction in income tax that results from the allowance for depreciation expenses on an asset, which can lower taxable income.

Marginal Tax Rate

The rate of tax that applies to the last dollar of the taxpayer's income, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Depreciated Fixed Asset

A long-term asset that has decreased in value due to wear and tear, age, or obsolescence.

SA/MID Address Code

A specific identifier used in networking, particularly with CAN (Controller Area Network) protocols, to designate a source address or module identification in vehicle communications.