At What Point Is the Payoff from Owning a Call

question 61

Multiple Choice

At what point is the payoff from owning a call option on a stock greater than the payoff from owning the stock itself?

• A) When stock price exceeds strike price at expiration
• B) When strike price exceeds stock price at expiration
• C) When stock price equals strike price at expiration
• D)Call payoff never exceeds stock payoff.

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Definitions:

Straight-Line Depreciation

A formula for distributing the cost of a tangible asset over its period of usability in consistent annual sums.

Production Line

A sequence of operations that assembles or manufactures products in a factory.

Expansion Option

An option within a project that allows for expansion, scaling up production or operations, if the initial phase is successful, often evaluated in capital budgeting.

Initial Cost

This is the amount required to start a project or investment, often encompassing purchase price, setup fees, and other initial expenses.