At What Point Is the Dollar Payoff from Owning a Call

question 6

Multiple Choice

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

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

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Definitions:

Supply Curve

represents the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing to offer for sale, holding all else constant.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price in a given time period.

Quantity Demanded

The total amount of a good or service that consumers are willing to purchase at a given price over a specified period.

Equilibrium

A situation where the equilibrium between market demand and supply is reached, leading to stable prices.