Exhibit 20 $\$ 3.25$ Premium
-Refer to Exhibit 20

question 106

Multiple Choice

Exhibit 20.4
Use the Information Below for the Following Problem(S)
Rick Thompson is considering the following alternatives for investing in Davis Industries which is now selling for $44 per share:
(1) Buy 500 shares, and
(2) Buy six month call options with mexercise price of 45 for $\$ 3.25$ premium
-Refer to Exhibit 20.4.Assuming no commissions or taxes what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?

• A) 161.54% gain
• B) 53.85% gain
• C) 161.54% loss
• D) 11.11% gain
• E) 53.85% loss

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Definitions:

Drawing Account

A drawing account is used to track the money or goods withdrawn by the business owner for personal use from the business.

Net Loss

The amount by which total expenses exceed total revenues in a business, indicating a negative financial performance over a specific period.

Income Statement Columns

This refers to the structured segments in an income statement or profit and loss account, showing revenues, expenses, and profits or losses of an entity over a specific period.

Debit Column

is a section in accounting records where increases in asset and expense accounts or decreases in liability, equity, and revenue accounts are entered.