You Purchase One IBM July 120 Call Contract for a Premium

question 30

Multiple Choice

You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM shares sell for $123 per share. You will realise a ________ on the investment.

• A)$200 profit
• B)$200 loss
• C)$300 profit
• D)$300 loss

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Definitions:

Average Total Cost

The total cost of production divided by the quantity produced, indicating the average cost per unit.

Economic Profit

The difference between total revenue and the total opportunity costs of all resources used in production, including implicit and explicit costs.

Long-run Equilibrium Conditions

A state in an economic model where all factors of production and markets adjust, resulting in no excess supply or demand.

Price-taker

A seller or buyer that has no control to dictate prices in the market, typically because of the highly competitive and uniform nature of the product.