You Wrote a $40 Call Option on a Stock That

question 36

Multiple Choice

You wrote a $40 call option on a stock that has a market price of $43. Which one of the following statements must be correct if the option expires three months from now?

• A)Your option currently has zero intrinsic value.
• B)Your option currently has a negative payoff.
• C)You have the right to purchase shares at $40 a share.
• D)Your option payoff will increase if the market price of the stock increases.
• E)If the market price remains stable, you will make the decision to exercise this option prior to expiration.

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Definitions:

Total Job Cost

The sum of all expenses directly associated with the production of a specific job, including materials, labor, and overhead costs.

Estimated Total Manufacturing Overhead

The projected or forecasted total of all manufacturing overhead costs for a specific period.

Manufacturing Costs

Manufacturing costs are the costs incurred in the process of producing a product, which include direct materials, direct labor, and manufacturing overhead.

Markup

The percentage added to costs to determine selling price, typically used in retail to cover costs and earn a profit.