Suppose the Price of a Share of IBM Stock Is

question 41

Multiple Choice

Suppose the price of a share of IBM stock is $100.An April call option on IBM stock has a premium of $5 and an exercise price of $100.Ignoring commissions,the holder of the call option will earn a profit if the price of the share

• A)increases to $104.
• B)decreases to $90.
• C)increases to $106.
• D)decreases to $96.
• E)none of the above.

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Definitions:

External Good

Often misinterpreted; should likely be "external good," relating to positive externalities, benefits received by those not directly involved in a transaction.

Nonrival-in-consumption

A property of a good whereby one person's consumption does not diminish the utility of that good for others.

Consumption

The process by which goods and services are used up by consumers, reflecting the end use of products and services in an economy.

Nonpaying Customers

Individuals or entities that receive goods or services without providing payment or compensation.