Manufacturers Who Are Concerned About Volatile Commodity Prices Often Use

question 74

Multiple Choice

Manufacturers who are concerned about volatile commodity prices often use option contracts to alter their risks. What is the worst-case scenario for a seller of put options on corn with a strike price of $4.75 per bushel?

• A) If corn prices drop below $4.75 the option premium will be lost.
• B) If corn prices rise above $4.75 the option premium will be lost.
• C) Losses can be large if prices drop sufficiently.
• D)Losses can be unlimited if prices rise sufficiently.

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Definitions:

Retinal Disparity

A phenomenon in vision science where the minor differences between the images perceived by each eye contribute to depth perception.

Cognitive Style

A characteristic mode of processing information, perceiving, and problem-solving, which can vary among individuals.

Cultural Background

The cultural environment and experiences that influence an individual's beliefs, values, and behaviors.

Expectation

A belief or anticipation about the outcome of an event or situation in the future.