Which One of the Following Is the Upper Price Bound

question 25

Multiple Choice

Which one of the following is the upper price bound for the intrinsic value of a European call option on a stock?

• A) $0
• B) strike price
• C) stock price
• D) Max (S - K, 0)
• E) Max (K - S, 0)

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as salaries of managers, depreciation of manufacturing equipment, and rent of the factory building.

Deferred in Inventories

A situation where costs incurred in acquiring or producing inventory are postponed from being recognized as expenses until the goods are sold.

Released from Inventories

The process of moving goods from inventory to be used in production or to be sold, thereby reducing the inventory account.

Unit Product Cost

The total cost (both direct and indirect) to produce a single unit of a product.