Suppose an Investor Buys One Share of Stock and a Put

question 48

Multiple Choice

Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price? (Ignore transaction costs.)

• A)The value of two shares of stock.
• B)The value of one share of stock plus the exercise price.
• C)The exercise price.
• D)The value of one share of stock minus the exercise price.

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Definitions:

Fixed Cost

Payments that do not vary with the amount of production or sales activities, including costs like renting spaces, salary payouts, and insurance contributions.

Operating Leverage

Operating leverage describes the extent to which a company can increase its profits by increasing sales, highlighting the ratio of fixed costs to variable costs.

Net Operating Income

The amount of profit a company makes from its normal business operations, excluding any income or costs from investments and other non-core business activities.

Sales Volume

The quantity of goods or services sold by a company within a specific period, used to measure business performance.