Suppose That in June 2013 You Bought a Call Option

question 188

Multiple Choice

Suppose that in June 2013 you bought a call option that allows you to buy 100 shares of a certain stock for $20 before October 2013. If the market price of the stock at some point before October 2013 is $23, and you exercise your option, what will happen?

• A) You will make a $30.00 profit.
• B) You will make a $300.00 profit.
• C) You will make a $3000.00 profit.
• D) You will incur a loss of $30.00.
• E) You will incur a loss of $300.00.

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Definitions:

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of that good by all firms in the industry.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies as production volume changes.

Raw Materials

The basic materials from which products are manufactured or made.

Average Total Cost

The total cost of production divided by the quantity produced, encompassing both fixed and variable costs to provide a per-unit cost basis.