Exhibit 20.5 Use the Information Below for the Following Problem(S)

question 9

Multiple Choice

Exhibit 20.5
Use the Information Below for the Following Problem(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for a premium of $8.25 when Peppy was selling for $48.00 per share.
-Refer to Exhibit 20.5.If at expiration Peppy is selling for $47.00,what is Sarah's dollar gain or loss?

• A) $25 loss
• B) $250 loss
• C) $25 gain
• D) $250 gain
• E) None of the above

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Definitions:

Scientific Method

A systematic process of inquiry involving observation, experimentation, and the analysis of data to gain understanding and make conclusions.

Cause-And-Effect Relationship

A principle describing a relationship in which one event (the cause) makes another event happen (the effect), with one being the result of the other.

Scientific Observation

Watching and recording participants’ behavior in a systematic and objective manner—in a natural setting, in a laboratory, or in searches of archival data.

Systematic

Characterized by having a methodical plan or procedure, especially in the context of scientific research or thorough investigation.