The Combination of a Position in a Covered Call and a Position

question 7

Multiple Choice

The combination of a position in a covered call and a position in a protective put on a stock index (where the options have the same strike and maturity) is similar to:

• A)A leveraged long position in the stock.
• B)A leveraged short position in the stock.
• C)A long position in a balanced index fund (i.e. ,long stock and long investment at the risk-free rate).
• D)A short position in a balanced index fund.(i.e. ,short stock and borrowing at the risk-free rate).

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Definitions:

FIFO Process Cost Method

An inventory valuation method that assumes the first items produced or acquired are the first sold or used, standing for "First-In, First-Out."

Equivalent Units

A concept in cost accounting used to express the amount of materials or labor in terms of complete units of production.

Conversion Costs

The costs incurred to convert raw materials into finished goods, including direct labor and manufacturing overhead.

FIFO Process Cost Method

An accounting method for valuing inventory and cost of goods sold, where the oldest costs are assigned to the sold units first.