The Maximum Option Payoff From

question 105

Multiple Choice

The maximum option payoff from:

• A)writing a put is $0.
• B)buying a put is $0.
• C)writing a call is an unlimited profit.
• D)buying a call is the strike price.
• E)writing a call is the stock price.

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Definitions:

MRS

Marginal Rate of Substitution, the rate at which a consumer is willing to substitute one good for another, maintaining the same level of utility.

Indifference Curves

Indifference curves are graphical representations used in microeconomics to show combinations of two goods that provide the consumer with the same level of satisfaction or utility.

Budget Constraint

The limitations on household consumption based on income and the prices of goods and services.

Utility Function

A mathematical representation of how a consumer derives satisfaction from consuming different quantities of goods and services.