Derivative Securities Are

question 33

Multiple Choice

Derivative securities are

• A) potentially dangerous because they are highly leveraged
• B) an effective tool to better manage business returns and risk
• C) always structured as option contracts
• D) both a and b are true
• E) all of these are true

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Definitions:

Break-Even Level

The point at which total revenues equal total expenses, resulting in neither profit nor loss.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as raw materials and packaging.

CVP Income Statement

An income statement format used in cost-volume-profit analysis, showing sales, variable costs, and the contribution margin.

Contribution Margin

The amount remaining from sales revenue after variable costs are deducted, indicating how much contributes to covering fixed costs and profit generation.