Which One of the Following Is True for an Investor

question 83

Multiple Choice

Which one of the following is true for an investor who purchased a share of stock for $45 and purchased a put option on the stock with an exercise price of $45?

• A) The investor profits when the stock decreases in value.
• B) The minimum payoff on the position is $45.
• C) The investor is protected against upside potential.
• D) Increases in the value of the stock will go to the seller of the put.

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Definitions:

Economic Profit

The balance difference between total revenues and complete costs, encompassing both overt and intangible costs.

Cartel

An agreement among competing firms to control prices or exclude entry of a new competitor in a market, often to maximize profits illegally or unethically.

Marginal Cost

The change in total production cost that comes from making or producing one additional unit of a good or service.

Fixed Cost

Costs that do not change with the level of output produced, such as rent and salaries.