What Is the Worst-Case Profitability Scenario for an Investor Who

question 75

Multiple Choice

What is the worst-case profitability scenario for an investor who sold a call on the firm's stock for a premium of $10 and a strike price of $100?

• A) $90 per share profit
• B) $10 per share profit
• C) $0 per share profit (break-even)
• D) Unlimited losses

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Definitions:

Outstanding Checks

Checks that have been issued by a company but have not yet been cleared or cashed by the recipient.

Discounted Note

A short-term debt security sold for less than its face value that will pay the face value at maturity; it reflects the discounted present value of the future cash flow.

Proceeds

The total amount of money received from a transaction, such as the sale of an asset, before any deductions.

Replenish Petty Cash

The process of adding funds to a petty cash fund, typically done when the balance drops to a predefined level, to ensure availability of cash for small, immediate expenses.